British Sky Broadcasting Group plc Annual Report and Accounts 2003 A year of positives Annual Report

01 Chairman’s Statement 02 A Year of Positives 04 Operating and Financial Review

Programming

14 News 15 Sports 16 Entertainment 18 Movies 20 Digital Channel line-up

Financial Statements

22 Directors’ Biographies 23 Directors’ Report 24 Corporate Governance 26 Report on Directors’ Remuneration 31 Directors’ Responsibilities Auditors’ Report 32 Consolidated Profit and Loss Account and Consolidated Statement of Total Recognised Gains and Losses 33 Consolidated Balance Sheet 34 Company Balance Sheet 35 Consolidated Cash Flow Statement 36 Notes to Financial Statements 61 Five Year Summary 62 Shareholders’ Service 63 Corporate Shareholder Information Chairman’s Statement

Rupert Murdoch, Chairman + A year of positives Sky’s excellent financial results for the year clearly demonstrate that we are starting to realise the benefit of our significant investment in digital television in Britain. Indeed throughout the last five years, Sky has always been the driving force behind making the UK the world leader in digital television, and I fully expect Sky to build on its market leadership to deliver increased financial and operational strength over the next year. The winning formula of offering an unrivalled entertainment product combined with excellent customer service has helped Sky to win many new customers and maintain world-class levels of customer loyalty. As a result, by the end of June 2003, Sky digital had reached over 6.8 million subscribers and succeeded in consistently outperforming its operational targets. With the Company poised to sign up its seven millionth customer later this calendar year, the focus is now on returning to, and exceeding, the levels of profitability previously achieved in analogue. Sky’s channels continue to grow in both their reach and popularity. Real progress has been made this year towards achieving our ambition of Sky in every home. Three of our Sky channels are now broadcast free-to-air via the digital terrestrial network that will, in due course, replace analogue broadcasting, thus completing the revolution in UK broadcasting started by Sky digital. Sky recognises its responsibilities as a broadcaster and as one of the largest British companies. Our commitment to the community is expressed through a host of initiatives, which are particularly focused on encouraging young people to reach their full potential. There have been a number of changes to the Board during the year. I would particularly like to thank Leslie Hinton and Martin Pompadur, who left the board in February 2003, for their contribution to Sky’s development over many years. The new non-executive Directors who joined the board during the year were Chase Carey, James Murdoch, Jacques Nasser, Gail Rebuck, and Lord Wilson of Dinton. Finally, I would like to thank Sky’s staff for their continued support. It is their dedication to serving the needs of our customers that has ensured Sky’s continuing success. 11 August 2003 This year’s positives + We continued to experience strong growth in DTH subscribers, adding 744,000 subscribers during the year + Customer loyalty has remained very strong, with churn below 10% for the year + For the first time, Sky has distributed its channels on free-to-air terrestrial television, with the launch of three channels on Freeview + Revenues increased 15% to £3,186 million

+ Operating profit before goodwill and exceptional items increased by 94% to £371 million + Profit before tax, goodwill and exceptional items of £260 million Operating and Financial Review

Sky delivered strong growth in profitability in the year to June 2003, building on the excellent operational performance of the business.

Sky is now looking forward to delivering increasing financial returns on the considerable investment it has made in digital television.

Tony Ball Chief Executive Martin Stewart Chief Financial Officer The business, its objectives and its strategy

British Sky Broadcasting Group plc and its Consistent reductions in SAC means that it DTH subscribers (million) subsidiaries (“Sky”, the “Group”) operate the has become increasingly profitable for Sky to leading pay TV broadcasting service in the acquire new subscribers. Reductions in SAC United Kingdom (“UK”) and the Republic of have principally been driven by the combination of 01 5.5 Ireland (“Ireland”), deriving revenues from lower costs of set-top boxes and other installation- 02 6.1 television broadcasting services and certain related hardware, together with increases in the 03 +++++++++++++++++++++++++++++++ 6.8 ancillary functions which are provided to both contribution made by the customer towards the retail and wholesale customers. installation cost, particularly for those customers on lower-tier packages. There has also been a Sky is an established and widely recognised brand, favourable impact on the costs of marketing for DTH revenue (£ million) with a reputation for quality and innovation. Sky acquisition purposes due to a change in the mix operates and distributes 26 wholly-owned channels of customer acquisition routes towards lower-cost (“Sky’s Channels”) and retails a further 96 third party direct sales. 01 1,537 channels to direct-to-home (“DTH”) viewers via its 02 1,929 digital service. In addition to this, Sky operates +Growing the popularity of Sky’s channels 03 ++++++++++++++++++++++++++++ 2,341 the Sky Box Office service (“SBO”), which provides Sky’s Channels generate significant advertising pay-per-view services covering films, sporting revenues for the Group and contribute to the events and concerts. appeal of the Sky digital platform. Sky One remains the UK’s most watched non-terrestrial Operating margin (before goodwill and Sky’s main objective is to build upon its position channel; together with Sky One Mix, which was exceptional items) as the leading provider of multichannel television launched in December 2002, it had an average services in the UK and Ireland in order to deliver multichannel viewing share of 3.5% for the financial long-term growth in shareholder value. Sky has year. Sky News has a reputation for impartial, 01 6.9% established a series of key operational and financial authoritative and up to the minute coverage of 02 6.9% targets, which ensure focus on certain priorities that breaking news. During 2003, Sky launched three 03 ++++++++++++++++++++++++++++ 11.6% will drive the business to achieve its main objective. new music channels, featuring an innovative These are as follows: interactive scheduling system. As the universe of multichannel homes has grown, Sky’s Channels + Continued expansion of the total DTH have been able to grow their share of the UK subscriber base advertising market and Sky currently expects Sky seeks to achieve this expansion in two this trend to continue. main ways; firstly, through the acquisition of new DTH subscribers and secondly, through the + Quality programming maintenance of a low churn rate. Sky’s current Investment in attractive programming is a key target is to reach 7 million subscribers by the end factor in generating the subscription revenues that of calendar 2003. Maintaining a low churn rate make up 80% (2002: 80%) of Sky’s total revenue. is currently a key component of maximising the Sky’s strategy is to acquire exclusive pay TV rights return Sky makes on its investment in customer for films, live sporting events and for other general acquisition. entertainment programming. At the same time, Sky’s priority is to control the costs of all of these Sky’s customer relationship management (“CRM”) types of programming in order to help deliver centres, principally based in Scotland, play a key improved operating margins. role in addressing this priority. The CRM centres deal with the handling of orders from subscribers, + Innovation in products and services, and the establishment and maintenance of subscriber investment in the future accounts, the invoicing and collection of revenue Sky has a strong track record of innovation, and telemarketing and customer services. These operating in a highly competitive environment, activities, together with a high level of customer which is reliant on technology that is subject to service and familiarity with customer needs, allow rapid change and development. Sky therefore the centres to play a key role, both in customer seeks to invest and adapt in order to remain acquisition and customer retention. competitive and keeps under review emerging 12.2m technologies for the distribution of entertainment + Maintenance of subscriber quality content or for the provision of new services to The record number Sky evaluates the financial return on its subscribers Sky’s subscriber base. of households in by, amongst other things, measuring Average Revenue per User (“ARPU”) and Subscriber Sky has successfully introduced new products the UK and Ireland Acquisition Cost (“SAC”). Sky’s current strategy and services such as Sky+, Sky Talk and the receiving one or more is to increase the revenues earned from its Extra Digibox and these continue to increase subscribers to achieve its ARPU target of £400 in popularity. Sky’s DTH customers also have of Sky’s channels by the end of the calendar year 2005. Growth access to Sky’s digital interactive services, in ARPU is expected to be derived from a Sky Active, and a range of other digital interactive combination of growth in revenues from core services, accessible either through stand-alone subscription products, new services such as Sky+ portals such as Sky Active, or in conjunction and the Extra Digibox, as well as revenues from with certain broadcast channels. These services Interactive and other services. include betting, games-playing, shopping, interactive programming, interactive advertising and telephony-based services such as voting.

British Sky Broadcasting Group plc Annual Report and Accounts 2003 5 Operating and Financial Review (continued)

Performance in the year

Operating profit (before goodwill and Total revenue for the twelve months ending At 30 June 2003, there were 105,000 subscribers exceptional items) (£ million) 30 June 2003 (“the year”) exceeded £3 billion to Sky+, representing an increase of 77,000 in for the first time, an increase of 15% over the the year, successfully achieving Sky’s target of year to 30 June 2002 (“the comparable period”) having 100,000 subscribers by 30 June 2003. 01 160 to £3,186 million. Total operating costs before Sky+ enhances Sky’s reputation for innovation 02 192 goodwill and exceptional items increased by and continues to lead the growing personal video 03 ++++++++++++++++++++++++++++++ 371 9% to £2,815 million, generating an operating recorder (“PVR”) category in the UK. The early profit margin before goodwill and exceptional evidence is that Sky+ customers demonstrate items of 12% (2002: 7%). Sky continues to encouraging levels of customer loyalty and a high ARPU benefit from strong operational gearing; propensity to subscribe to top-tier packages. In Quarterly annualised operating profit before goodwill and exceptional addition, at 30 June 2003, there were 165,000 items increased by 94% over the comparable subscribers to the Extra Digibox, representing period to £371 million. Profit after tax was 111,000 net additions during the year. 57% of Sky+ 01 £313 £190 million, the Group’s first full year of subscribers are also Extra Digibox subscribers. 02 £347 positive earnings since the launch of Sky 03 +++++++++++++++++++++++++++++ £366 digital. Since net debt peaked at 31 December Sky digital continues to offer the widest choice 2001 at around £1,833 million, the Group has in multichannel television in the UK and Ireland. reduced its net debt by £728 million, to end At 30 June 2003, there were over 395 channels the period at £1,105 million. available via digital satellite, including over 120 Churn rates Year to date channels retailed by Sky, around 160 free TV and radio channels, and over 85 pay-per-view channels. Operating review 01 10.0% Sky’s own channels have recently increased their 02 10.5% At 30 June 2003, the number of DTH satellite potential reach. Under the terms of an arrangement subscribers in the UK and Ireland was 6,845,000 recently agreed with ntl, Sky One, Sky News and 03 ++++++++++++++++++++++++ 9.4% representing a net increase of 744,000 in the year. Sky Sports News will continue to be carried on ntl’s Sky remains highly confident of achieving its target digital cable network, until the end of 2006. An of 7 million subscribers by the end of calendar additional six Sky channels, including Sky One Mix, year 2003. Sky Travel, Sky Travel Extra and the recently launched channels from Sky Music (The Amp, As a result of the continued growth in the number Flaunt and Scuzz), will be distributed on ntl’s cable of DTH subscribers and the launch of the digital network for the first time. terrestrial free-to-air service, Freeview, in October 2002, the total number of UK and Ireland households Sky concluded a new 5-year agreement with the receiving one or more of Sky’s channels increased BBC in June 2003, ensuring that all of the BBC’s by 2.0 million to a record 12.2 million in the year. channels, including all regional variations, will be listed on Sky’s Electronic Programme Guide DTH churn for the year stands at 9.4%, a (“EPG”). The BBC channels are unencrypted but reduction of over one percentage point on the the BBC has secured a regionalisation service using comparable period. Sky’s conditional access technology, to ensure that Sky subscribers will continue to receive their The annualised average revenue per DTH appropriate national and regional variation of subscriber (“ARPU”) at 30 June 2003 was £366. BBC One and BBC Two. Sky also announced The increase of 5% over the comparable period the renewal for five years of its conditional access reflected the change in Sky’s UK retail prices which agreement with Channel Five, commencing was effective from 1 January 2003, along with October 2003. increased contributions from products such as Sky+ and the Extra Digibox and higher usage of interactive services. 01

02

+ + 03 Programming Sky’s highest audience for five years with an in- home peak of 3.8 million viewers. On the final day As multichannel penetration continued to rise, of the Premiership season, Sky Sports’ three 7,000,000 DTH subscribers target the viewing share of Sky channels across all UK live matches attracted the highest ever final day television homes grew to 6.4% for the year audience and, over the entire FA Premier League compared to 6.1% in the previous year. season, average audiences were up 17% on the prior year. Sky News continues to be the leading 24-hour news channel within multichannel homes, beating Over the past twelve months Sky has secured the viewing share of BBC News 24 and the ITV three significant football rights agreements. In News channel combined. Industry recognition has September 2002, Sky won the rights to cover live continued with a second British Academy award and UEFA Champions League football for the first time, the Royal Television Society News Channel of the and from September 2003 will have exclusive live Year award for the second year running, underlining coverage of all Wednesday matches in the UK and “SKY REMAINS HIGHLY CONFIDENT Sky News’ reputation as the home of breaking news. up to six live ties on Tuesday nights. Sky has also OF ACHIEVING ITS TARGET OF recently announced that it will share the rights with Sky One continues to lead audience delivery amongst the BBC to broadcast the Football Association’s 7 MILLION SUBSCRIBERS BY THE the key 16-34 year old demographic. Sky One key properties in a new four-year agreement END OF CALENDAR YEAR 2003.” combines a commitment to commissioning and commencing at the start of the 2004/05 season. developing factual entertainment programmes The new contract has yielded a significant cost with a growing reputation for fast turn-around saving compared to the existing contract. Finally, documentaries such as Michael Jackson: The on 8 August 2003, it was announced that Sky had Untold Story. successfully bid for all four packages of exclusive live UK rights to FA Premier League football from Sky Sports had another strong year. Its viewing the beginning of the 2004/05 season to the end of share across UK homes grew by 13% on the the 2006/07 season. This new agreement offers comparable period and programming was increased our subscribers unparalleled coverage of Premier across its five dedicated channels. Memorable League football with more games available for live moments during the year included Europe’s dramatic broadcast than ever before. The total cost of the Ryder Cup victory at The Belfry, the England Rugby new agreement for the four UK live packages is Union team’s record-breaking run of victories against £1,024 million over three years. the Southern Hemisphere sides in both the Autumn Internationals and Summer Tour, and the Cricket Sky Movies’ share of viewing for the year within World Cup. The live Premiership match between multichannel homes was 3.6%, with Saturday Arsenal and Manchester United in April attracted Premieres continuing to perform strongly. From June 2003 there has been a shift in emphasis in movie scheduling away from weekday slots and towards the weekend line-ups. A record number of “Megahits” were broadcast this year, almost triple the number shown five years ago. Sky’s innovative use of multiplexes to allow a film to be shown at multiple start times on the same day has proven to be very popular, generating 1.8 million viewers for Jurassic Park III and 1.3 million viewers for Harry Potter and the Philosopher’s Stone.

01 SKY+ IS CHANGING THE WAY OUR CUSTOMERS EXPERIENCE TV

02 SKY’S WIDE RANGE OF INTERACTIVE SERVICES OFFERS SOMETHING FOR ALL THE FAMILY

03 WITH SKY, KIDS CAN GET THEIR OWN EXTRA DIGIBOX TO CATCH THE SHOWS THEY WANT TO WATCH = £400 (our ARPU target)

British Sky Broadcasting Group plc Annual Report and Accounts 2003 7 Operating and Financial Review (continued)

£3,186m Total revenue increased by 15% in the year to £3,186m

Financial Review

Turnover Total revenue for the year grew by 15% increase was principally due to the success of Analysis of turnover 2002/03 to £3,186 million, driven by further strong DTH interactive advertising and Sky Buy. Interactive revenue growth and continued growth in advertising advertising is demonstrating strong potential, with Direct-to-home 74% and interactive revenues. revenue increasing 54% on the comparable period. subscribers Cable 6% subscribers DTH revenue, which now accounts for 74% of total Other revenue for the year increased by 8% to Advertising 9% turnover (2002: 69%), grew by 21% to £2,341 million £141 million, primarily due to hardware-related for the year. This growth reflects the 14% increase revenue on the sale of Sky+ and Extra Digiboxes. Interactive 7% in the average number of DTH subscribers and an Other 4% increase in the non-interactive component of ARPU, Programming costs Programming costs largely driven by the change to Sky’s UK retail prices increased by 11% to £1,604 million, principally as a in January 2003, but also by the introduction of new result of contractual increases in sports costs and products such as Sky+ and the Extra Digibox. volume-related increases in movie and third party Analysis of operating costs 2002/03 channel costs. Before goodwill and exceptional items Cable revenues, which account for 6% of total revenue (2002: 8%), fell by 11% on the comparable Sports costs, which represent 45% of total Programming 57% period, with the number of UK cable homes and the programming spend (2002: 46%), increased by Transmission & 5% related functions average number of premium channels taken by each £60 million to £723 million. This was principally cable subscriber falling. Sky announced, on 23 June driven by contractual increases in rights costs and Marketing 14% 2003, that it had concluded an agreement for the the costs of non-annual events such as the Ryder Subscriber management 12% supply of nine basic Sky channels to ntl, effective Cup and the Cricket World Cup. Contractual Administration 8% until the end of 2006. increases were partly offset by savings achieved by the decisions made not to renew agreements Betting 4% The termination of ITV Digital’s digital terrestrial to broadcast UEFA Cup and Scottish Premier TV (“DTT”) operation on 30 April 2002 has resulted League football, and Six Nations Rugby. in a one-off reduction in total wholesale revenue of around 19%. An increase in movie costs of £37 million to £397 million reflected the increase in the average number Sky’s advertising revenue continued to outperform of movie subscribers, around a 30% increase in the the market with a 13% increase on the comparable number of output titles qualifying as “Megahits” over period to £284 million, principally reflecting the benefit the comparable period, and contractual increases. from strong share deals negotiated with advertising The increase was offset by savings resulting from agencies for calendar year 2003, and strong growth in the continued weakness of the US dollar. Sky’s overall subscriber base. Sky currently expects this above-market growth to continue for at least the DTH distribution fees paid to third party channels remainder of the calendar year. rose by £54 million to £351 million, due to the increased number of subscribers, contractual per Interactive applications continue to contribute to subscriber fee increases and small changes to the Sky’s revenue growth, with total interactive revenue channel line-up. These increases were partly offset increasing by 17% to £218 million, of which by savings generated by the renewal, on improved £117 million related to Sky Bet, Sky’s wholly-owned terms, of contracts with Flextech and UKTV (five-year bookmaker. The increase in betting revenue was agreements from January 2002), Sci-Fi (a two-year driven by a threefold increase over the comparable extendable agreement from November 2002) and period in the total volume of bets placed to over 15 Cartoon Network (a five-year agreement from million, of which 12 million were interactive television January 2003). In all cases, savings of at least bets. Sky Active revenue amounted to £101 million, 15% on the pence per subscriber cost of channel increasing by 11% on the comparable period. The carriage were achieved.

8 Annual Report and Accounts 2003 British Sky Broadcasting Group plc Entertainment programming costs increased by Exceptional items During the comparable period, £9 million to £94 million, principally due to the the Group made an exceptional operating provision scheduling of new acquired programming and the of £22 million against the wholesale revenues that EPS before goodwill launch of four new Sky channels during the year it was owed by ITV Digital. During the year, the and exceptional items (Sky One Mix, Flaunt, The Amp and Scuzz). Group received a payment amounting to £5 million increases to Operating costs of Sky News rose by £5 million to of this debt, generating a credit to the profit and £39 million, driven predominantly by the additional loss account. This operating exceptional item has costs of coverage of the conflict in Iraq. been included within operating profit.

Other operating costs Transmission and related The Group has also made a provision against some costs before exceptional items decreased by of its minority equity investments. This has led to a pence £4 million to £143 million, mainly due to reductions net non-cash exceptional charge of £15 million, 10.5 in technical operations costs through transponder which is accounted for below operating profit. cost efficiency savings. The Group recognised an exceptional deferred tax Marketing costs at £401 million declined by credit of £123 million during the year (see Taxation £16 million on the comparable period despite section below). broadly the same number of digital installations. SAC was £207, representing a reduction of £27 Joint Ventures The Group’s share of net operating on the comparable period. The reduction was due profits in joint ventures increased to £3 million in the to the combination of reduced hardware costs, an period, an increase of £80 million on the comparable increase in install revenues and a greater proportion period, principally reflecting the cessation of equity of direct acquisitions. accounting for the Group’s share of losses incurred by KirchPayTV from 8 February 2002. Subscriber management costs increased by £33 million to £324 million. Subscriber management Taxation The net tax credit for the period includes costs comprise two main activities: customer a current pre-exceptional tax charge of £85 million relationship management (“CRM”) costs associated and a deferred tax credit of £3 million (which is with managing the existing subscriber base; and included within the total £28 million non-exceptional supply chain costs relating to systems and deferred tax credit) due to the Group generating infrastructure and the hardware costs of new profits chargeable to corporation tax in this fiscal products purchased by subscribers, such as Sky+ year. Before the effect of goodwill, joint ventures and Extra Digiboxes. As a result of customer and exceptional items, this results in an underlying contact centre efficiencies and lower incoming call effective tax rate of 31%, slightly higher than the volumes, CRM costs per subscriber have fallen by UK statutory rate due to a number of standard 15%, leading to an absolute cost reduction of 3% disallowable items. over the comparable period to £148 million. Supply chain costs increased by 28% over the comparable As a result of the significant investment made period to £176 million, reflecting the growth in the in digital, and the resultant losses incurred, the number of Sky+ and Extra Digiboxes and costs Group has accumulated significant tax losses within associated with the smartcard swap-out as part of different Group companies. stringent on-going anti-piracy measures. Under the UK Accounting Standard FRS19, a Administration costs before goodwill and exceptional deferred tax asset in respect of these tax losses items increased by £33 million to £236 million, may only be recognised in the Group’s balance including increases in insurance costs and disaster sheet at the point when it is ‘more likely than not’ 01 02 recovery planning costs. that there will be sufficient future taxable profits to offset the tax losses thereby being capitalised. Betting costs increased by £20 million to £108 million, directly as a result of the continued As the Group’s and individual entities’ profitability strong growth in betting revenues. has continued to rise it has become increasingly possible to satisfy the requirements of FRS19. Earnings before interest, tax, depreciation and During the six months ended 31 December 2002, amortisation before exceptional items (“EBITDA”) for the Group recognised a £40 million deferred tax the year increased by 72% to £469 million. asset, principally as a result of the forecast future profitability of one of the Group’s trading subsidiaries. Goodwill Goodwill amortisation increased by 01 Sky continues to enhance its games portal, Sky Gamestar. £3 million on the comparable period to £122 million. Subsequently, following a review of the forecast Increased usage of pay-to-play games contributed to an This increase was largely due to a £5 million utilisation of tax losses within the Group, and as a 11% increase in Sky Active revenues in 2003. provision against goodwill which originally arose consequence of a planned reorganisation of certain 02 Interactive advertising is demonstrating strong potential. on the acquisition of Opta Index Limited (“Opta”). assets within the Group, the Directors have been Sky has run more than 300 interactive campaigns for 120 This provision was made as a result of the Group’s able to conclude that the required FRS19 conditions different clients, helping advertisers to connect with their core target audiences via the Sky platform. announcement in December 2002 that it would have also now been satisfied in respect of other close Opta and the carrying value of this goodwill tax losses in the Group, permitting the Group to has been reduced to nil. The Group is currently in recognise a further deferred tax asset of £123 million, negotiations to sell or license some or all of Opta’s which has been treated as an exceptional tax credit assets to a third party. due to its size. This brings the total deferred tax

British Sky Broadcasting Group plc Annual Report and Accounts 2003 9 Operating and Financial Review (continued)

asset recognised within the year to £151 million, net Net interest costs of £115 million decreased by This year Sky of utilisation and an adjustment arising from the prior £22 million on the comparable period due to period. Following this recognition, the Group has lower levels of indebtedness and lower average generated a no further significant unrecognised UK losses, and interest rates. net operating therefore, over the long-term, the Group’s ongoing UK tax charge in the profit and loss account is Returns to shareholders On 5 May 1999, cash inflow of expected to continue at a rate of around 31%. it was announced that the Board had decided to suspend dividend payments to shareholders. After the £85 million current pre-exceptional tax Accordingly, no dividends have been paid or charge for the period, the £151 million deferred tax proposed since that date. credit, the tax charge on exceptional items (£1 million) and Sky’s share of joint ventures’ tax (£2 million), the £664m net tax credit for the period was £63 million. Balance sheet

During the period, £45 million of Advanced Financing Corporation Tax (ACT) brought forward was utilised The Group’s principal sources of liquidity are to reduce the Group’s cash tax liability. operating cash flow, combined with access to the aggregate £800 million (2002: £1,050 million) Earnings The Group has recorded the first full year revolving credit facilities, described in more detail of positive earnings since the launch of Sky digital below. Long-term funding comes primarily from US after generating a profit after tax of £190 million. dollar and sterling-denominated public bond debt, With the weighted average number of ordinary which are described in more detail below. shares outstanding during the year (excluding those shares held by the ESOP Trust) at 1,915 million, + Revolving Credit Facilities (“RCF”s) earnings per share before goodwill and exceptional On 20 March 2003 the Group signed a new, items of 10.5 pence per share was achieved, five-year £600 million RCF. The new facility was compared to a loss per share of 2.7 pence for used to cancel the Group’s £750 million facility, the comparable period. originally due to mature in June 2004, and will be used for general corporate purposes. In addition, Cash flow and interest With EBITDA of the Group’s existing £300 million facility was £469 million, exceptional items of £5 million and voluntarily reduced to £200 million and will cash generated from the movement in working mature, as before, in June 2004. Available capital of £191 million, the Group generated facilities, therefore, now total £800 million, and £664 million of net operating cash inflow. This will reduce to £600 million from June 2004, in line represents the conversion of 179% of operating with the anticipated reduced capital requirements profit before goodwill and exceptional items to of the Group, which has been cash flow positive cash inflow. After taking into account cash since January 2002. outflows principally comprising net cash interest payments of £125 million, capital expenditure of Under the terms of the £200 million facility, interest £98 million and tax paid of £18 million, net debt accrues at between 0.500% and 1.750% per decreased by £423 million in the period, from annum above the London Inter-Bank Offer Rate £1,528 million to £1,105 million. At 30 June 2003, (“LIBOR”), depending on the Group’s credit rating. leverage (the ratio of net debt to EBITDA) was 2.4 Under the terms of the £600 million facility, interest times, and interest cover (the ratio of EBITDA to is fixed at 1.125% per annum above LIBOR net interest payable) was 4.1 times. until June 2004, and thereafter accrues at rates between 0.600% and 1.125% per annum above Despite the continued growth of the business, Sky LIBOR, depending on the Group’s ratio of net debt generated cash from the movement in working to EBITDA, provided that the rate does not fall capital this year due to a combination of one-off below 0.700% per annum prior to 20 March 2006. factors (for example the unwinding of prepayments At 30 June 2003, the ratio of net debt to EBITDA of certain sports rights) and factors which will was 2.4 (2002: 5.6). Interest cover (the ratio of continue to apply as the business continues to grow. EBITDA to net interest payable) was 4.1 (2002: The latter includes Sky’s subscription collection 2.0). The Group currently expects these ratios to cycle, and the payment in arrears for certain continue to improve. programming costs, such as those incurred in respect of the carriage of third party channels. + Guaranteed notes During the current and prior year the Group Other recurring components of the positive working also had in issue the following publicly traded capital movement include the reversal, over time, guaranteed notes: of prepayments made for Sky’s long-term satellite transponder leases, and the accounting treatment US$300 million, 7.300% Guaranteed Notes, for certain share-based employee remuneration repayable in October 2006. The Group entered schemes which, under UK GAAP, result in charges into swap transactions to convert the US dollar to the profit and loss account, despite being non- proceeds to pounds sterling, of which half carries cash in nature. a fixed rate of interest of 8.384% until maturity. The remainder was fixed at 7.940% until 15 April 2002, and at 6.130% for the remaining life of the Notes.

10 Annual Report and Accounts 2003 British Sky Broadcasting Group plc £100 million, 7.750% Guaranteed Notes and Treasury policy and risk management The US$650 million, 8.200% Guaranteed Notes, both Group’s treasury function is responsible for raising repayable in July 2009. The proceeds of the finance for the Group’s operations, together with US dollar Notes were swapped at inception into managing foreign exchange, interest rate and pounds sterling at a fixed rate of 7.653% per counterparty risks. Treasury operations are annum. In December 2002 and March 2003, conducted within a framework of policies and the Group amended the terms relating to £63.5 guidelines authorised and reviewed by both the million of these swap arrangements, the effect of Audit Committee and the Board, who receive which was to fix the interest rate on £63.5 million regular updates of treasury activity. Derivative at 5.990% until January 2004, after which time it instruments are transacted for risk management will revert to floating six months LIBOR plus a purposes only. It is the Group’s policy that all margin of 3.390%. hedging is to cover known risks and that no trading in financial instruments is undertaken. Regular and US$600 million, 6.875% Guaranteed Notes, frequent reporting to management is required for all repayable in February 2009. The US dollar transactions and exposures and the internal control proceeds have been swapped into pounds environment is subject to periodic review by the sterling at a fixed rate of 8.200% per annum. Group’s internal audit team. The amount of cash Sky’s state of the art facilities at its headquarters in Osterley, West London, help our journalists to be first placed with any one institution is restricted to with breaking news. Fixed and current assets ensure counterparty risks are minimised. Intangible assets decreased by £121 million, from £657 million to £536 million, due to the amortisation The Group’s principal market risks are its exposures of goodwill and the provision against Opta goodwill. to changes in interest rates and currency exchange Intangible assets mainly comprise the goodwill that rates, which arise both from the Group’s sources of arose on the acquisitions of British Interactive finance and from its operations. Following evaluation Broadcasting Holdings Limited (“BiB”), Sports of those positions, the Group selectively enters into Internet Group plc (“SIG”) and WAPTV. derivative financial instruments to manage these exposures. Interest rate swaps are used to hedge Tangible fixed assets increased in the period interest rate risks, forward rate agreements to by £3 million, mainly due to £101 million of hedge transactional currency exposures and cross- additions, including investment in customer- currency interest rate swaps to hedge exposures facing technology, improvement in web-based on long term foreign currency debt. technology and improved back-up facilities, partly offset by depreciation of £98 million. Fixed asset Interest rate management The Group has investments decreased by £20 million, mainly financial exposures to both sterling and US dollar due to the further provision against our minority interest rates, arising primarily from bank borrowings investments in football clubs of £21 million and long-term bonds. These exposures are managed made at 31 December 2002. Subsequently, by borrowing at fixed and variable rates of interest the Group reduced its provision against its and by using interest rate swaps to manage investment in Chelsea Village plc at 30 June 2003 exposure to interest rate fluctuations. The principal by £3 million, following the agreement to sell method of hedging interest rate risk is to enter into its minority investment in July 2003. cross-currency swap arrangements, the effects of which are to fix the Group’s sterling interest costs Net current assets decreased by £88 million, at certain rates. The majority of these arrangements principally caused by an increase in creditor relate to the Group’s US dollar-denominated debt balances, mainly due to the increase in deferred and provide for the exchange, at specified intervals, subscription revenues resulting from an increased of fixed-rate amounts of dollars in return for fixed- subscriber base; a decrease in debtors due to the rate amounts of sterling. All of the Group’s debt amortisation of the FAPL prepayment; and a exposure is denominated in sterling after cross- decrease in non-programming stock due to currency swaps are taken into account; however the utilisation of set-top box stocks outweighing at 30 June 2003, the split of aggregate borrowings purchases in the period. into its core currencies was US dollar 84% and sterling 16%. Reserves British Sky Broadcasting Group plc (“the The Group also enters into sterling interest rate Company”) had a deficit of £1,120 million swap arrangements which provide for the exchange, on its company-only profit and loss reserve at at specified intervals, of the difference between fixed 30 June 2003. In order to improve the presentation rates and variable rates, calculated by reference to of the Company’s balance sheet, and give the an agreed notional sterling amount. The fair value of Company greater flexibility in any future distribution interest rate and cross currency swaps held as of policy, the Directors intend to propose a resolution 30 June 2003 was approximately £7 million in the at the Annual General Meeting to eliminate the Group’s favour. (30 June 2002: £60 million in the deficit by reducing the Company’s share premium Group’s favour). account. In order for this to take effect, the reduction will require the subsequent approval of the High Court.

British Sky Broadcasting Group plc Annual Report and Accounts 2003 11 Operating and Financial Review (continued)

The Group’s exposure to floating interest rates During the year, surplus euros were exchanged for is currently limited to drawings upon its revolving sterling on currency spot markets. In the twelve credit bank facilities. At 30 June 2003 bank facility months to 30 June 2003, euro 59 million (2002: drawings represented 7% of the Group’s total debt euro 55 million) was exchanged at spot rates for (30 June 2002: 32%). 93% of the Group’s total debt sterling. A further euro 30 million has been retained to at 30 June 2003 is fixed-rate after taking account of meet obligations under forward foreign exchange interest rate swaps (30 June 2002: 87%). contracts for the puchase of Swiss francs. (see below)

To ensure continuity of funding, the Group’s policy During the period, the Group acquired the pay is to ensure that available funding matures over a TV rights to certain UEFA Champions League period of years. At 30 June 2003, 47% of the football matches from the 2003/04 season to the Group’s available funding was due to mature in end of the 2005/06 season. Payments in respect of more than five years (30 June 2002: 42%). these rights will be made pursuant to the contract in Swiss francs, which means that the Group will be Currency exchange rates The Group’s revenues exposed to the Swiss franc/pound sterling exchange are substantially denominated in pounds sterling, rate. In line with the Group’s policy of limiting foreign Reach for the Sky Live is a series of two-day residential although a significant proportion of operating costs exchange transactions to fixed price instruments, all courses held across the UK, focusing on careers in sport, is denominated in US dollars. In the year to 30 June of this exposure for 2003/04 (CHF 99 million) has entertainment and journalism. 15 and 16 year-olds have the opportunity to meet and talk to people in the business, gain 2003, 15% of operating costs (£424 million) were been hedged via the use of forward contracts for the hands-on experience of relevant activities and find out denominated in US dollars (30 June 2002: 15%; exchange of euros and Swiss francs. about job opportunities. £393 million). These costs relate mainly to the Group’s long term programming contracts with Corporate responsibility The centrepiece of the US suppliers. Group’s community activities, ‘Reach for the Sky’, attracted 3,875 young people at events where they The Group currently manages its US dollar/pound were able to build their confidence and learn new sterling exchange risk exposure by the purchase of skills in motivating surroundings. The programme forward foreign exchange agreements for up to was a finalist in Business in the Community Awards 18 months ahead. All forward rate agreements are for Excellence. A major new disablility strategy has in respect of firm commitments only, and represent been launched to ensure that disabled people can approximately 90% of dollar-denominated costs access all areas of the Group, including its services, over the relevant 18 month period. technology and employment.

At 30 June 2003, the Group had outstanding Sky is a member of the FTSE4Good Index and the commitments to purchase in aggregate Dow Jones Sustainability Index. These indices are US$903 million at average rates of US$1.493 limited to companies that can prove they are respectively to £1.00. Although these financial working towards goals such as positive stakeholder instruments can mitigate the effect of short-term relationships and environmental sustainability. fluctuations in exchange rates, there can be no effective or complete hedge against long-term Employee share option schemes The Group currency fluctuations. manages its risk in respect of certain employee share option schemes through a dedicated Our primary euro exposure arises as a result of Employee Share Option Plan, which purchases revenues generated from our subscribers in the the Company’s shares in the open market from Republic of Ireland. These euro-denominated time to time. revenues are offset to a certain extent by euro- denominated costs, relating mainly to certain The accounting policies in respect of market risk transponder rentals, which results in a euro surplus. sensitive instruments are disclosed in the financial statements in Notes 1, 21 and 25.

Going concern The Directors consider that the operating cash flows of the Group, together with its own bank facilities, will be sufficient to cover the Group’s projected operating requirements and to settle or refinance the Group’s other liabilities as they fall due. Accordingly, the accounts are prepared on a going concern basis.

“I’D LIKE TO PAY TRIBUTE TO ALL THE DIGITAL PLATFORMS WHO HAVE 11 August 2003 NOW FOUND SPACE FOR THE COMMUNITY CHANNEL ON THEIR PLATFORMS. I KNOW SKY WAS THERE FIRST AND THE CHANNEL IS ENORMOUSLY GRATEFUL FOR THE START THAT SKY GAVE.” Tessa Jowell MP, Secretary of State for Culture, Media and Sport.

12 Annual Report and Accounts 2003 British Sky Broadcasting Group plc programming + content Programming and Content News

Sky News Audience Profile Since its launch in 1989, Sky News has During the war, Sky News’ share of viewing in Q4 2002/03 established itself as a formidable and innovative multichannel homes increased by 650%. force in the world of news broadcasting. It now provides news to 80 million people in over 40 A MORI poll, reporting on which channel was Sky News 48% 52% countries around the world. viewed at all, viewed most, and was most trusted, Total TV 41% 59% stated, “BBC One won the terrestrial race, while Sky Sky News Valued for fairness, balance and had a strong lead over both BBC News 24 and ■ ABC1 ■ C2DE journalistic objectivity by both viewers and CNN for the digital honours”. Source: BARB regulators, the award-winning channel has also earned a reputation for the speed of its 24-hour In September 2002, Sky News also introduced a coverage and flexibility in reporting live news – first. new look morning show – Sky News Today, which features a flexible format, giving space for greater During the year, Sky News continued to perform explanation, analysis and debate. And, earlier in strongly, once again attracting industry recognition, 2003, it introduced a new evening discussion including its second BAFTA award and, for the programme – Littlejohn. 01 Jeremy Thompson – Soham tragedy second year running, it was named RTS News 02 David Chater – Live from Baghdad 03 Julie Etchingham and Martin Stanford on the Channel of the Year, as well as Non-Terrestrial The end of October 2002 saw Sky News become set of Sky News Today Channel of the Year at the Guardian Edinburgh available via DTT under the Freeview brand, one of International Television Festival. Sky’s three channels on the digital free-to-air platform.

These awards underlined Sky News’ reputation as In terms of interactivity, over four million votes have the first place to turn to for breaking news: Sky was been received through Sky News Active and the the first British broadcaster to break the news of service continues to innovate, introducing eight full 01 the bombing of Baghdad, signalling the start of the screens of on-demand coverage this year. In addition Iraq War. And it reported live on the battle of Umm Sky News has introduced a pioneering desktop Qasr, broadcasting the first live battlefield scenes, news service – Sky News Alerts. subsequently aired by all UK and most US networks. These innovations, combined with an unrivalled expertise in breaking news, will ensure that Sky News remains at the forefront of news provision in the 21st century.

FACT More awards for Sky News: during 2002/03, Sky News won its second BAFTA award, and, for the second year running, was named RTS News Channel of the Year, as well as Non-Terrestrial Channel of the Year at + first the Guardian Edinburgh International Television Festival. 02 Sky News has a well-earned reputation for the speed of its 24-hour coverage bringing viewers live news – first.

03

Sky News Sky News Active Active Sky digital Sky News Active Online continues to Sky News continued innovate all the Channel choice to innovate this year time – introducing by introducing Sky # 6.8 million subscribers enjoy 8 full screens of on- News Active Online – watching the Sky digital demand coverage a broadband content platform which continued to this year. service based on 1go from strength to strength award winning Sky during the year, reaffirming News Active. its position as the leading provider of digital TV for UK viewers.

14 Annual Report and Accounts 2003 British Sky Broadcasting Group plc Programming and Content Sports

In the last year Sky Sports has offered Last football season saw Sky Sports attract its Sky Sports Audience Profile subscribers more sport than ever. There have highest audience for five years with the Premiership Q4 2002/03 been nearly 35,000 hours of programming match between Arsenal and Manchester United. across the five dedicated channels, around a Promoted on and off-air as ‘Face Off’, the clash Sky Sports 69% 31% third of which were broadcast live. between the title contenders drew the biggest live Premiership audience and the third-highest Total TV 45% 55% Sky Sports Among the most memorable moments multichannel audience ever. were Europe’s Ryder Cup victory at The Belfry, ■ Men ■ Women England’s hat-trick of victories in Rugby Union’s Football League competitions returned to Sky Source: BARB Autumn Internationals, and the Cricket World Cup. Sports and the Nationwide League and Worthington Cup each attracted higher audiences than before. The Ryder Cup – which attracted a record golf Sky achieved particularly strong viewing figures on audience for Sky Sports – was live and interactive the day of the Worthington Cup Final and the with Sky digital viewers offered eight different views. Cricket World Cup game between England and They could choose to follow up to three different live Australia, with 47% of multichannel homes viewing 01 matches, catch up with highlights, see an up-to-the- either event. minute scoreboard, analyse a course guide, review the day’s best shots or watch press conferences For the 2003 Cricket World Cup every match was and practice sessions. shown exclusively live through February and March. When matches clashed, Sky Sports used its Sky Sports has since announced a new deal for the interactive technology to offer a choice of live games. Ryder Cup, ensuring that golf’s premier event will be + more exclusively live in 2004, 2006 and 2008. It has also Prior to the Cricket World Cup, the ICC Trophy won extended deals with the PGA European Tour and England’s Ashes tour were also live. After this, for over 30 tournaments and all four World Golf the recent ‘Summer of Sport 2003’ on Sky Sports Championship events each year, until 2008. featured each of England’s one-day cricket internationals and the successful launch of Twenty20 This season the UEFA Champions League has been added to the line-up In other new deals signed this year, Sky Sports cricket alongside England’s Rugby Union victories and Sky Sports will show more live extended its contracts for two of golf’s Majors against Australia and New Zealand. football than ever before. (the USPGA Championship and US Open) Golden League Athletics and NFL American Football, and Sky Sports News, which marks its fifth anniversary agreed a new four-year deal with the Football this autumn, continues to grow with audiences up 02 Association. 50% in the first six months of 2003 and is now available via digital terrestrial as well as digital In the autumn, Sky won the rights to cover live satellite and cable. UEFA Champions League football for the first time. From September 2003, at the Group Stage, Sky Sky Sports Active launched new services, with Sports will have exclusive live coverage of all speedway the eleventh sport to be shown live and Wednesday matches in the UK and up to six live interactive and Sky Bet available through interactive 03 ties on Tuesday nights, with viewers choosing which football menus supported by a new betting-based game to watch through an interactive menu. commentary.

The 2003/04 new football season will now showcase Skysports.com also set new records, for unique more televised football than ever on Sky Sports with users and total page impressions during the year over 350 live matches, including the Barclaycard and users of the site have more than doubled Premiership, Nationwide Football League, FA Cup, since the start of 2002. Carling Cup, Tennents Scottish Cup and international football. 01 UEFA Champions League football 02 The Ryder Cup 03 England’s Rugby Union victory in Australia

Sky Bet Live Following the success of the Sky Bet service, Sky Bet Live Sky digital launched in December 2002 for the Arsenal v Manchester United game. This provides live in-running betting commentary from the experts for Premiership and Nationwide League football matches. It enables football Interactive TV fans watching a game on Sky Throughout the year, the range of Sports 1 via digital satellite to interactive services from both Sky Active place bets throughout the game and third-party channels on digital satellite while they are watching. continued to expand with a whole host of new games and services launching.

British Sky Broadcasting Group plc Annual Report and Accounts 2003 15 Programming and Content Entertainment

Sky One Audience Profile At Easter 2003 the combined audience of The jewel in the crown of Sky One’s home-grown Q4 2002/03 non-terrestrial TV channels exceeded both portfolio of drama serials is Dream Team. About to BBC One and ITV1, for the first time ever in start its seventh year and achieving its highest ever total TV homes. ratings, it is joined in the ranks by Mile High, our Sky One 47% 53% new drama series charting the lives and loves of Total TV 25% 75% Sky One At the forefront of this sea change in young staff aboard budget airline, Fresh!. Mile High viewing habits is BSkyB’s flagship entertainment launched in September 2002, with the highest ever Age: ■ under 35 ■ over 35 channel, Sky One, which remains the most watched rating for an original drama series on Sky. Source: BARB non-terrestrial TV channel in Britain. Sky One also provides user-friendly interactive Traditionally the home of top US programming, services allied to individual programmes, which in turn Sky One showcases a range of award-winning generate incremental revenues for BSkyB. Temptation acclaimed shows such as Dinotopia – The Series, Island viewers were able to take part in a compatibility Enterprise, Buffy, Angel, Scrubs, Malcolm in the quiz and viewers watching the Michael Jackson Middle – and of course the world’s favourite special were prompted to submit interactive votes. animated family and the most successful animation series of all time, The Simpsons. Sky One Mix Sky One viewers now have even more ways to watch their favourite shows. A new During the year, Sky One achieved some of its channel, Sky One Mix, launched in December 2002 biggest ever audiences. The compelling factual and gives audiences an extra opportunity to see documentary Michael Jackson: The Untold Story – popular programmes from the line-up. delivered an audience of over two million, Sky One’s second largest audience ever. The channel continues to innovate and entertain by bringing viewers the hottest new series from the US, with Nip/Tuck, Tarzan, and Skin which will be coming soon.

At the heart of the Sky One schedule, the commitment to commissioning and developing long-standing factual entertainment franchises like Spend It Like…, Close Up and Football Years remains and is complemented with a growing reputation for fast turn around topical documentaries FACT Over the past year Sky Travel has more than such as Rooney: Wayne’s World, When Football doubled its viewing share in multichannel homes. Managers Go Mad, and Prince William Uncovered. This is due to the launch of the Sky Travel Extra Pushing the boundaries with compelling reality multiplex, the channel launching on Freeview and television formats are popular returning series such improved programming. as Fear Factor UK.

Sky digital Sky One 70,000 Sky One embraced interactive TV during the year with the Interactive Simpsons – which gave fans the votes chance to vote for their favourite Simpsons episodes via the red button. This was concluded with an 70,000 votes were placed via August bank holiday bonanza where the top ten the red interactive button and episodes voted for were broadcast back-to-back telephone for Michael Jackson: over the holiday weekend. The Untold Story

16 Annual Report and Accounts 2003 British Sky Broadcasting Group plc Programming and Content Entertainment

Music Channels: Flaunt, The Amp & Scuzz Within three months of their launch, Sky’s music BSkyB’s three new interactive music channels, channels have a combined total of 6% of music Flaunt, The Amp and Scuzz, launched in April 2003. viewing by 16-34 year olds on the digital satellite For the first time ever, viewers can vote for their platform. favourite video on the playlist through their remote controls and enjoy the videos in widescreen format. Sky Travel, Sky Travel Extra & Sky Travel Shop They can also be right up-to-date with all the latest With their roster of fresh and absorbing travelogue FACT The sixth series of the multi award- music news and take part in exclusive competitions. programming, the Sky Travel channels are fast winning football soap Dream Team, the becoming leading players in the growing TV travel UK’s longest running non-terrestrial drama Each music channel serves a specific, highly- sector. It is the only TV travel service to offer flight series, achieved its highest ratings to date targeted demographic: Scuzz is the home for music purchases directly via the red interactive button. throughout its run in 2002/03. fans who like their guitars loud and their thrills thick and fast; Flaunt features a blend of chart, urban and dance hits; and The Amp is for dedicated music aficionados. As well as the interactive features, each channel is supported by a website where viewers can sign up for behind-the-scenes newsletters. According to BARB research (June 2003), Scuzz 01 and The Amp are the most viewed music video channels in terms of average monthly viewer minutes amongst 16-34 year olds.

+ best 03

02 Mile High has the best ever rating for an original drama series on Sky. 01 Dream Team 02 Mile High 03 Dinotopia FACT Sky One is the most watched 04 Scrubs non-terrestrial channel in the UK. Sky One and Sky One Mix combined have a total 3.5% viewing share for multichannel homes in 2003. 04

Sky digital

Sky Gamepad In December 2002 the UK’s first dedicated digital TV games controller – Sky Gamepad – was launched, enabling Sky Gamestar selected titles to be played by up to four people in a household, simultaneously, all via the wireless controllers.

British Sky Broadcasting Group plc Annual Report and Accounts 2003 17 Programming and Content Movies

Sky Movies Audience Profile Outside the US, the combination of Sky Q4 2002/03 Movies and Sky Box Office offers the most 01 comprehensive movie choice on any TV service anywhere in the world, with all the channels Sky Movies 37% 51% 12% now transmitted in widescreen and true-life Total TV 25% 35% 40% Dolby 5.1 cinema sound available on Sky Movies Premier 1, 2 and 3. Age: ■ 16-34 ■ 35-54 ■ 55+ Source: BARB Sky Movies Sky Movies carries the latest blockbusters, movie favourites and cinema classics. Each year Sky Movies viewers enjoy around 2000 different films. Over the last 12 months, six films attracted audiences of more than one million – Lara Croft: Tomb Raider, What Women Want, Crocodile Dundee in Los Angeles, Jurassic Park III, Swordfish and Harry Potter and the Philosopher’s Stone. This autumn, the movie channels will unveil a brand new look to reinforce their unique offering. This will include a fresh on-air brand, schedule changes and enhanced on-line and interactive applications.

Sky Box Office, the pay-per-view service, offers a choice of around 200 films each year as well as music and sports events. Viewers are offered staggered start times, and purchase each event separately. In the past year, Sky Box Office has aired four of the top 20 grossing films of all time: Harry Potter and the Philosopher’s Stone, Lord of the Rings: The Fellowship of the Ring, Spiderman and Star Wars Episode II: Attack of the Clones.

Top Sky Box Office movies 2002/03

FACT Over the past 12 months, Sky Movies 1 Shallow Hal screened 93 out of the top 100 grossing 2 Jurassic Park III movies of the previous year. 3 51st State 4 Ocean’s Eleven 5 Harry Potter and the Philosopher’s Stone 6 Swordfish 7 Mean Machine 8Legally Blonde 9 Spy Game 10 Bend It Like Beckham

Skymovies.com Skymovies.com has a massive Sky digital database covering 30,000 film titles, together with hundreds of biographies and picture Sky Movies Active galleries as well as the latest movie news and gossip. Pressing the red button on the Sky handset takes the viewer to eight separately streamed preview screens where they can watch current movie trailers, together with interviews with the stars and directors. Alongside this is an extensive text service which offers film reviews, synopses and actor/director profiles and the latest movie news. Viewers can even buy cinema tickets and DVDs through Sky Movies Active.

18 Annual Report and Accounts 2003 British Sky Broadcasting Group plc 01 Spiderman 02 Harry Potter and the Philosopher’s Stone 03 The Lord of the Rings – The Fellowship of the Ring 04 Bend It Like Beckham 05 Gosford Park 06 American Pie 2 07 Legally Blonde 08 Ice Age 09 Swordfish

03

02 2,000 film titles shown across 11 separate screens per year + richer

04 Sky Movies has made our viewers’ experience of films even richer through its dedicated seasons and themes, including Asia Extreme, The Gangs of New York, Gene Hackman season, Comic Book heroes and The Blonde Weekend.

07

09

05 06

08

The UK’s first integrated digibox and digital personal video recorder, Sky+, continued to receive acclaim throughout the media, winning many awards, most recently Home Sky digital Entertainment’s Mega Test Best Buy, with a five-star rating in August 2003. Satisfaction levels with the Sky+ service are very positive with over 90% of Sky+ customers saying they are likely to recommend it to friends and family. SOURCE: SKY TRACKER RESEARCH MAY 2003 275% Sky+ subscriptions rose by 275% in the year to 105,000

British Sky Broadcasting Group plc Annual Report and Accounts 2003 19 Programming and Content Digital Satellite Channel line-up

The digital satellite platform brings an 60 Entertainment channels CNN attheraces Phoneworld extraordinarily wide-ranging choice of BBC ONE ITV News Channel NASN Vitality channels to over 6.8 million viewers BBC TWO Euro News Extreme Sports Sky Travel Shop throughout the UK and Ireland. Including live ITV1 Fox News Chelsea TV Going Places sport, the latest movies, breaking news, Channel 4 CCTV9 Premiership plus Factory Outlet original and innovative entertainment, Sky’s five Discovery Channel Setanta Sport 1 God Channel Sky One Discovery Channel (+1hour) Setanta Sport 2 God 2 digital line-up has established it as the Sky One Mix Discovery Travel and Wonderful undisputed market leader in multichannel UK Gold Adventure 25 Music channels TBN Europe television. Sky ensures that its customers are UK Gold (+1hour) Discovery Civilisation MTV Christian TV offered what they want – constantly delighting UK Gold 2 Discovery Science MTV Hits Revelation them with choices beyond their already very Living TV Discovery Wings MTV2 Jobs TV high expectations. Whatever genre of Living TV (+1hour) National Geographic MTV Base Community Channel programming interests them, Sky’s customers BBC THREE Channel MTV Dance Dating Channel know they can find it on satellite. Another key BBC FOUR National Geographic VH1 txt me reason why our customers choose to invite Granada Plus Channel (+1hour) VH1 Classic Open Access and keep Sky in their homes. Challenge? Adventure One TMF TDC2 Bravo The History Channel The Box TX1 Bravo (+1hour) The History Channel Kiss Chat Box Paramount (+1hour) Smash Hits! Create + Craft Sci-Fi Biography Magic Abu Dhabi 01 Discovery Home & Leisure UK Horizons Q TV5 Discovery Home & Leisure UK Horizons (+1hour) Kerrang! Pub Channel (+1hour) Discovery Animal Planet Chart Show TV Create & Craft Men and Motors Discovery Animal Planet The Vault B4U Movies Sky Travel (+1hour) The Hits B4U Music Sky Travel Extra UK History P-rock Sony TV Asia UK Style Classic FM TV STAR News 02 UK Style (+1hour) 18 Kids’ channels channel U STAR Plus UK Food Cartoon Network The Amp PCNE Chinese UK Drama Cartoon Network (+1hour) Scuzz mta- muslim TV Travel Channel Boomerang Flaunt Zee TV Travel Channel 2 Nickelodeon MCE (audio) Zee Music S4C ~ Digitol Nick Replay MCE extra (audio) Zee Cinema Hallmark Nick Toons TV Bangla TV Discovery Health Trouble 67 Radio channels ARY Digital Artsworld Fox Kids 67 Radio channels Ekushey TV 03 Life TV Fox Kids (+1hour) PTV Prime E4 Disney Channel 78 Specialist channels Southforyou E4+1 Disney Channel (+1hour) QVC Alpha EtcPun Showcase Toon Disney TV Travelshop Al Jazeera Fashion TV Playhouse Disney TV Travelshop 2 ART Movies Game Network Discovery Kids TV Shop (Al Jazeera mpx) ITV2 CBBC Ideal World ART Music You TV CBeebies Price-Drop TV (Al Jazeera mpx) Avago Nick Jr. Shop America MBC BEN POP Travel Deals LBC Reality TV Simply Shop CNX 78 Movie channels Best Direct 31 Adult channels Classics TV Sky Movies Premier (x4) Simply Home Playboy TV 04 E! Sky Movies Max (x5) Simply TV Adult Channel UK Bright Ideas Sky Movies Cinema (x2) Simply Ideas Television X Ftn Film Four TV Warehouse Spice Performance Film Four (+1hour) Shopping Genie Spice Xtreme Rapture TV Film Four Weekly bid-up.tv Private Blue FRIENDLY TV TCM Thomas Cook Playboy TV Adult Channel ACTV Sky Box Office Preview Telsell Private Girls 05 BBC TWO Scot SBO (x62, incl. 2xW/Screen) letsgoshop+ Red Hot channels (x6) BBC TWO NI Auction World Pout Uncut BBC Parliament 16 Sports channels Shop on TV Tantalise TV S42 ~ 2 Sky Sports 1 Thane Direct XXX TV BBC 2W Sky Sports 2 ShopSmart Amateur Babes 01 Sky News Active Sky Sports 3 TVWarehouse Erotika (1-6) 02 Ryder Cup Golf – Sky Sports 03 Oasis – The Amp 26 News and Sky Sports Extra Shop 24/7 18+ Movies (x7) 04 Sky Travel documentary channels MUTV Stop+ Shop 05 Gamestar Sky News Sky Sports News Yes 3 Customer channels Bloomberg British Eurosport Screenshop Sky Customer Channel BBC News 24 Eurosportnews 24hr TV High Street Channel Line-up CNBC Motors TV JML Direct Sky Welcome

20 Annual Report and Accounts 2003 British Sky Broadcasting Group plc ER TAX + 15% INCREASE IN REVENUES + 21% INCREASE IN DTH REVENUE + £664 MILLION NET OPERATING CASHFLO

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22 Directors’ Biographies FIT AFTER TAX + 15% INCREASE IN REVENUES + 21% INCREASE IN DTH REVENUE + 23£664 Directors’ MILLION Report NET OPERA 24 Corporate Governance 26 Report on Directors’ Remuneration HFLOW + £190 MILLION PROFIT AFTER TAX + 15% INCREASE IN REVENUES + 21% INCREASE31 Directors’ IN Responsibilities DTH REVENUE + Auditors’ Report 32 Consolidated Profit and Loss Account LION NET OPERATING CASHFLOW + £190 MILLION PROFIT AFTER TAX + 15% INCREASE IN REVENUESand Consolidated +Statement 21% ofINCREAS Total Recognised Gains and Losses 33 Consolidated Balance Sheet 34 Company Balance Sheet REVENUE + £664 MILLION NET OPERATING CASHFLOW + £190 MILLION PROFIT AFTER TAX +35 15% Consolidated INCREASE Cash Flow Statement IN REVENU 36 Notes to Financial Statements 61 Five Year Summary INCREASE IN DTH REVENUE + £664 MILLION NET OPERATING CASHFLOW + £190 MILLION62 Shareholders’PROFIT ServiceAFTER TAX + 15 63 Corporate Shareholder Information REASE IN REVENUES + 21% INCREASE IN DTH REVENUE + £664 MILLION NET OPERATING CASHFLOW + £190 MILLION PR Directors’ Biographies

Tony Ball (age 47) Executive Director Jacques Nasser (age 55) Independent Non-Executive Director Tony Ball was appointed as Chief Executive Officer and Managing Director in June 1999. Jacques Nasser was appointed as a Director of the Company on 8 November 2002 and He was previously President and CEO of Fox/Liberty Networks. He also spent three is a Senior Partner of One Equity Partners, the private equity business of Bank One years of his career with BSkyB as General Manager/Broadcasting. Mr Ball was a Non- Corporation. In addition, he is Chairman of Polaroid Corporation, and he serves on the Executive Director of Marks and Spencer plc and resigned this position in International Advisory Board of Allianz A.G. He served as a Member of the Board of September 2002. Directors, and as President and Chief Executive Officer of Ford Motor Company from 1998 to 2001. He has received an honourary Doctorate of Technology and graduated in Martin Stewart (age 39) Executive Director Business from the Royal Institute of Melbourne. Because of his significant contributions Martin Stewart was appointed as Chief Financial Officer and a Director of the Company to the well being of humanity and to the country of Lebanon, he has received the Order in May 1998. He previously served the Company as Head of Commercial Finance from of the Cedar. In recognition of his work for Australian industry, as an adviser to March 1996. Prior to joining the Company, Mr Stewart was employed at Polygram for government, and for education in the area of technology, he was awarded an Order of five years, latterly at Polygram Filmed Entertainment, where he was Finance Director for Australia and a Centenary Medal. two years. In February 2001, Mr Stewart was appointed a Non-Executive Director of Michael Page International plc. Gail Rebuck (age 51) Independent Non-Executive Director Gail Rebuck was appointed as a Director of the Company on 8 November 2002. She is Philip Bowman (age 50) Independent Non-Executive Director Chairman and Chief Executive of The Random House Group Ltd, the UK’s largest trade Philip Bowman has been a Director of the Company since December 1994. He is Chief publishing company. In 1982 she became a founder Director of Century Publishing. Executive of Allied Domecq plc, a director of Burberry Group plc and a member of the Century merged with Hutchinson in 1985 and in 1989 Century Hutchinson was acquired UK Industrial Advisory Board of Alchemy Partners. He was previously Chairman of by Random House Inc. In 1991, Ms Rebuck was appointed Chairman and Chief Liberty plc, a Director of Coles Myer Ltd in Australia, an Executive Director of Bass plc Executive of Random House UK. Ms Rebuck has been a Trustee of the Institute for Public and Chairman and Chief Executive of Bass Taverns Ltd. Policy Research since 1993 and was for three years a member of the Government’s Creative Industries Task Force. She is on the Board of The Work Foundation, a member Chase Carey (age 49) Non-Executive Director of the Court of the University of Sussex and a member of the Council of the Royal College Chase Carey was appointed a Director of the Company on 13 February 2003. He has of Art. Ms Rebuck was awarded a CBE in the 2000 New Year’s Honours List. been a Non-Executive Director of News Corporation since 2002 and was an Executive Director from 1996 until 2002. He has been named President and Chief Executive Arthur Siskind (age 64) Non-Executive Director Officer of Hughes Electronics Corporation pending the completion of News Corporation’s Arthur Siskind has been a Director of the Company since June 1992. Mr Siskind has acquisition of a 34% interest in Hughes and serves on the Boards of Gateway, Inc. and been a Senior Executive Vice President of News Corporation since January 1996 and an Colgate University. Mr. Carey previously served as Co-Chief Operating Officer of News Executive and Group General Counsel of News Corporation since 1991. He was an Corporation and as a Director and Co-Chief Operating Officer of Fox Entertainment Group Executive Vice President of News Corporation from February 1991 until January 1996. (“FEG”). Mr. Carey has also held the positions of Chairman and Chief Executive Officer of Mr Siskind has been a Director of NAI since 1991, a Director of STAR since 1993, a Fox Television, Director of Star Group Limited (“STAR”), Director of NDS Group plc Director of NDS since 1996 and Senior Executive Vice President, General Counsel and (“NDS”) and Director of Gemstar-TV Guide International, Inc. (“Gemstar”). a Director of FEG since August 1998. Mr Siskind has been a member of the Bar of the State of New York since 1962. David DeVoe (age 56) Non-Executive Director David DeVoe has been a Director of the Company since December 1994. Mr DeVoe has Lord St John of Fawsley (age 74) Independent Non-Executive Director been an Executive Director of News Corporation since October 1990; Senior Executive Lord St John of Fawsley has been a Director of the Company since 1991. He is a non- Vice President of News Corporation since January 1996; Chief Financial Officer and executive Director of Blackfriars Investments, of which he was previously Chairman and a Finance Director of News Corporation since October 1990 and Deputy Finance Director Director of Blue Lion Limited. He was a Director of the N.M. Rothschild Trust from 1990 from May 1985 to September 1990; Director of News America International (“NAI”) since to 1998. Lord St John is Chairman of the Royal Fine Art Commission Trust and was January 1991; and a Director of STAR since July 1993. He has also been a Director of Chairman of the Royal Fine Art Commission from 1985 to 2000. He is a member of the FEG since 1991 and a Senior Executive Vice President and Chief Financial Officer since Privy Council and holds the Order of Merit of the Italian Republic. Lord St John has held August 1998. Mr DeVoe has been a Director of NDS since 1996 and a Director of the offices of Minister of State for Education, Minister of State for the Arts, Leader of the Gemstar since June 2001. House of Commons and Chancellor of the Duchy of Lancaster. He has also been Master of Emmanuel College, Cambridge. He is a regular commentator on television and radio. David Evans (age 63) Independent Non-Executive Director David Evans was appointed as a Director of the Company on 21 September 2001. John Thornton (age 49) Independent Non-Executive Director He is President and Chief Executive Officer of Crown Media Holdings, Inc. He was John Thornton has been a Director of the Company since 1994. He is Professor and previously President and Chief Executive Officer of Crown’s predecessor, Hallmark Director of Global Leadership at Tsinghua University in Beijing and a Director of the Ford Entertainment Networks, from 1 March 1999. Prior to that he was President and Chief Motor Company, Intel Corporation and the Pacific Century Group, Inc. Mr Thornton is Executive Officer of Tele-Communications International, Inc. (“TINTA”) from January Chairman of the Brookings Institution and a Director or Trustee of several educational 1998. He joined TINTA in September 1997 as its President and Chief Operating Officer, and philanthropic organisations. With effect from 1 July 2003, Mr Thornton retired as overseeing the day-to-day operations of the company. Prior to joining TINTA, from July President and Co-Chief Operating Officer of the Goldman Sachs Group, Inc. and as a 1996, Mr Evans was Executive Vice President, News Corporation. member of its Board of Directors. Mr Thornton attended Harvard College, Oxford University and the Yale School of Management. Allan Leighton (age 50) Independent Non-Executive Director Allan Leighton was appointed as a Director of the Company on 15 October 1999. In March Lord Wilson of Dinton (age 60) Independent Non-Executive Director 1992, he joined ASDA Stores Limited as Group Marketing Director, in September 1996 he Lord Wilson was appointed as a Director of the Company on 13 February 2003. was appointed Chief Executive and in November 1999 he was appointed President and He entered the Civil Service as an assistant principal in the Board of Trade in 1966. He CEO of Wal-Mart Europe. He resigned all of these positions in September 2000. subsequently served in a number of departments including 12 years in the Department Mr Leighton is Chairman of Wilson Connolly Holdings plc, B.H.S. Ltd, Lastminute.com plc, of Energy where his responsibilities included nuclear power policy, the privatisation of Royal Mail Group and Cannons Group Ltd. He is Deputy Chairman of Leeds United plc Britoil, personnel and finance. He headed the Economic Secretariat in the Cabinet Office and a Non-Executive Director of Dyson Ltd and George Weston Limited. under Mrs Thatcher from 1987 to 1990 and after two years in the Treasury was appointed Permanent Secretary of the Department of the Environment in 1992. He James Murdoch (age 30) Non-Executive Director became Permanent Under Secretary of the Home Office in 1994 and Secretary of the James Murdoch was appointed as a Director of the Company on 13 February 2003. He Cabinet and Head of the Home Civil Service in January 1998. Since his retirement in has been Chairman and Chief Executive Officer of STAR since May 2000. He is also September 2002, he has been Master of Emmanuel College, Cambridge. He was made Executive Vice President of News Corporation and a member of News Corporation’s a peer in November 2002. Board of Directors and Executive Committee. Mr Murdoch serves on the Boards of NDS and YankeeNets and the Board of Trustees of the Harvard Lampoon. Mr Murdoch attended Harvard University. Martin Pompadur and Leslie Hinton, both Non-Executive Directors, resigned from the Rupert Murdoch (age 72) Non-Executive Director Board on 13 February 2003, and were replaced by Chase Carey and James Murdoch. Rupert Murdoch has been a Director of the Company since 1990, when he founded British Sky Broadcasting, and was appointed Chairman in June 1999. Mr Murdoch has Alternate Directors been a Director of News Limited in Australia since 1953; a Director of News International Rupert Murdoch, James Murdoch, David DeVoe, Arthur Siskind and Chase Carey have plc in the UK since 1969; a Director of NAI in the US since 1973; and Executive Director, appointed each of the others to act as their alternate Director and in addition have Managing Director and Chief Executive of News Corporation since 1979. Mr Murdoch appointed Leslie Hinton as their alternate Director. has also served as a Director of FEG and its predecessor companies since 1985, Chairman since 1992 and Chief Executive Officer since 1995. In addition, he has been Philip Bowman has appointed Allan Leighton and David Evans as his alternate Directors. a Director of STAR since 1993 and Gemstar since 2001. David Evans has appointed Philip Bowman and Allan Leighton as his alternate Directors.

22 Annual Report and Accounts 2003 British Sky Broadcasting Group plc Directors’ Report

The Directors present their Annual Report on the affairs of British Sky Broadcasting Employment policies Group plc (“BSkyB”, “the Company”) and its subsidiary undertakings (together, “the The Directors’ interests in the Ordinary Shares and options of the Company are disclosed Group”), together with the Accounts and Auditors’ Report for the year ended 30 within the Report on Directors’ Remuneration on pages 26 to 31. June 2003. Equality of opportunity Activities The Group believes everyone should be given equal access to the same choices and The Chairman’s Statement on page 1 and the combined Chief Executive’s Statement opportunities in recruitment and employment, irrespective of their differences and needs. and Operating Financial Review on pages 4 to 12 report on the principal activities of the Group, its financial and operating performance during the year and the future The Group has a range of policies designed to ensure that it can meet this commitment. development of the business. These include respect for family and religious needs and reasonable adjustment and communication support for disabled people. Applications are welcomed from a diverse Results and dividends talent pool and the recruitment process is accessible to disabled people. In addition the The profit on ordinary activities after taxation for the year ended 30 June 2003 was Group is working in partnership with Sabre employment (a specialist disability £190.3 million (2002: loss of £1,382.6 million). On 5 May 1999 it was announced that employment group) to ensure appropriate support for the continuing employment of the Board had decided to suspend dividend payments to shareholders. Accordingly, disabled people. The Group is committed to promoting awareness of diversity through no dividend is proposed. training and working practices.

Payment policy The Group is a gold card member of the Employers’ Forum on Disability and supports The policy of the Group is to agree terms of payment with suppliers prior to entering into both the Broadcasting and Creative Industries Network and the Cultural Diversity a contractual relationship. In the absence of a specific agreement it is the policy of the Network. Group to pay suppliers on a monthly basis. The Group had 20 days’ purchases outstanding at 30 June 2003 (2002: 19 days) based on the total amount invoiced by Health and safety non-programme trade suppliers during the year ended 30 June 2003. Programme The health and safety of the Group’s employees is a matter of major importance. creditors include significant balances which are not yet contractually due. In respect of Accordingly, it is the Group’s policy to manage its activities so as to avoid causing any amounts both contractually due and invoiced, the outstanding number of days’ unnecessary or unacceptable risk to the health and safety of its employees. purchases is below 30 days (2002: below 30 days). The Group’s goal is to work towards continuous improvement in the management of our Share capital health and safety risks. To this end, a review was undertaken in the first quarter of 2003 Details of changes in the share capital during the year are disclosed in note 23 to the to ensure that the Group not only meets all applicable statutory requirements but also accounts. On 11 August 2003 the following companies, or their subsidiary undertakings, demonstrates its commitment to employee well-being. The measures required to resolve held more than 3% of the Company’s share capital: the action points highlighted in the review are currently underway.

BSkyB Holdco Inc (a subsidiary of News Corporation)...... 35.40% Employee involvement and communication It is the policy of the Group to develop employee involvement throughout the organisation Corporate governance and to ensure that employees are aware of the financial and economic factors affecting Details concerning the Group’s arrangements relating to corporate governance and its the Group. Communication meetings between management and employees’ representatives compliance with the Combined Code of Best Practice and the Best Practice Provisions are typically held on a quarterly basis where matters of specific interest are discussed. annexed to the Listing Rules of the London Stock Exchange are given on pages 24 and On-going consultation occurs covering a broad range of areas such as pension provision 25. The Report on Directors’ Remuneration is on pages 26 to 31. and health and safety, and employees’ views are taken into consideration when making decisions. The Group publishes two employee magazines covering a wide range of Charitable and political contributions and community activities employee issues, runs a comprehensive intranet system and regularly hosts roadshows, In 2003, the Group realised further developments to its corporate responsibility strategy. conferences and forums for two-way communications. The Group’s electronic mail This included understanding more fully the expectations of its stakeholders, including local system ensures that staff are kept updated on relevant information and initiatives. schools and national voluntary organisations. These discussions enabled the Group to draw up its first shared vision statement, setting objectives for the business and defining Training and development stakeholder expectations. Employees have the opportunity to participate in a range of training programmes in the fields of technology, the broadcast industry, professional skills and management and The Group’s shared vision statement personal development. The Company is represented at Board level within the Broadcast “BSkyB takes its commitment to the community seriously, with the aim of achieving value for Industry Sector Skills Council, Skillset, which promotes training and development both our business and the wider community by helping young people understand and realise opportunities across the industry. their potential. We aim to provide clear information on our community involvement and to establish partnerships with the voluntary and public sector organisations we work with.” Financial participation The Group operates a Sharesave (discounted share purchase) scheme, a Company The Group’s second Corporate Responsibility Review details the business activity pension scheme, and also a stakeholder pension scheme for the benefit of all eligible supporting its shared visions and provides further information on our community employees. initiatives (see www.sky.com). Environmental responsibility The Group’s community activity has continued to focus on utilising our strengths as a The Group recognises the importance of environmental responsibility and the complete business to deliver a measurable and sustainable impact on the community, both at a BSkyB Environmental Report can be found in the corporate section on the Company’s local and national level. This is achieved via the Group’s main community involvement website. This report does not form part of the Annual Report. initiative, Reach for the Sky (see www.sky.com/rfts). There are three initiatives within Reach for the Sky, each consisting of a three-way partnership between the Group, Annual General Meeting voluntary organisations and government departments. The notice convening the Annual General Meeting to be held on 14 November 2003 at 11.30am can be found in a separate notice accompanying the Annual Report. – In 2003, the Group in the UK donated a total value of £2,145,000 (2002: £1,634,000) to charities, of which £678,000 was in the form of cash (2002: £948,000), and the Auditors remainder was in the form of services in kind. On 1 August 2003, Deloitte & Touche, the Company’s auditors transferred their business – In 2003, 3,875 young people attended Reach for the Sky events at 16 locations within to Deloitte & Touche LLP, a limited liability partnership incorporated under the Limited the UK. Liability Partnerships Act 2000. The Company’s consent has been given to treating the – In 2003, Reach for the Sky was a finalist in Business in the Community’s Awards for appointment of Deloitte & Touche as extending to Deloitte & Touche LLP with effect from Excellence – “Cause-Related Marketing Award.” 1 August 2003 under the provisions of section 26(5) of the Companies Act 1989. A resolution to re-appoint Deloitte & Touche LLP as the Company’s auditors will be Political contributions of the Group in the UK during 2003 amounted to nil (2002: nil). proposed at the forthcoming Annual General Meeting.

Directors By order of the Board, The Directors who served during the year are listed on page 22. David Evans, Lord St John of Fawsley and Martin Stewart retire from the Board by rotation, and being eligible, David Gormley offer themselves for re-election. Mr Stewart’s contract of employment is subject to one Company Secretary year’s notice. Philip Bowman also retires from the Board by rotation but will not offer 11 August 2003 himself for re-election.

British Sky Broadcasting Group plc Annual Report and Accounts 2003 23 Corporate Governance

BSkyB is committed to high standards of corporate governance and, except as noted Remuneration Committee below, has complied throughout the year with the best practice provisions of Section 1 The Remuneration Committee, on behalf of the Board, is responsible for recommending of the Combined Code on Corporate Governance (“the Code”) appended to the Listing to the Board the framework and policy for Executive Directors’ remuneration and Rules of the Financial Services Authority. remuneration for any Executive of the Company earning a basic salary in excess of £250,000 per annum. The Remuneration Committee has clearly defined terms of The Board reference, meets not less than once a year and takes advice from the Chief Executive The Board currently comprises fifteen Directors, made up of two Executive Directors and Officer and independent consultants as appropriate in carrying out its work. The thirteen Non-Executive Directors, eight of whom are Independent Non-Executive Remuneration Committee currently comprises five Non-Executive Directors, three of Directors. The Non-Executive Directors of the Company bring a wide range of whom are independent. experience and expertise to the Company’s affairs and they carry significant weight in the Board’s decisions. Short biographies of each of the Directors are set out on page 22, The Remuneration Committee is chaired by John Thornton, and its members are David which also clearly identify those Directors who are, in the view of the Board, independent Evans, Jacques Nasser, Rupert Murdoch and David DeVoe. The Company notes that the within the meaning of the Code. In the previous year’s Annual Report, the Board noted composition of the Remuneration Committee does not comply with the Code. The Board that there was not a majority of Independent Non-Executive Directors, as required by the considers that Messrs Murdoch and DeVoe, along with the other members of the Code, and expressed its intention to remedy this situation. Following the appointments Committee, have provided a valuable contribution to the Remuneration Committee, and of Gail Rebuck and Jacques Nasser at the Annual General Meeting on 8 November 2002 believes that they will continue to do so in the future. Accordingly, the Company does not the Company has been compliant with the Code. propose to alter the current membership of the Remuneration Committee.

The roles of the Chairman and Chief Executive Officer are separate and have been so The Board also notes that the terms of the Executive Directors’ service contracts do since the Company obtained its listing in 1994. In prior years the Board did not deem it not comply with the Code and this is more specifically discussed within the Report on necessary to appoint a Senior Non-Executive Director and as such was not compliant Directors’ Remuneration which can be found on pages 26 to 31. In accordance with with the Code. However, in last year’s Annual Report the Board confirmed its commitment the Directors’ Remuneration Report Regulations 2002, the Report on Directors’ to make an appointment and on 7 November 2002, Lord St John of Fawsley was appointed Remuneration will be put forward for an advisory shareholder vote. as the Senior Non-Executive Director of the Company. Audit Committee The Board is scheduled to meet at least six times a year to review appropriate strategic, The Audit Committee, which consists exclusively of Non-Executive Directors, has clearly operational and financial matters as required. A schedule of items reserved for the full defined terms of reference as laid out by the Board. The Audit Committee is chaired by Board’s approval is in place, which includes, inter alia, the approval of annual and interim Philip Bowman and its members are Allan Leighton, Gail Rebuck, David DeVoe and results, significant transactions, agreements or arrangements between the Group and Arthur Siskind. It meets not fewer than four times a year to review all significant members of The News Corporation Limited group (“News Corporation”) and other judgements made in the preparation of the quarterly, half yearly and annual financial related parties, major capital expenditure and the yearly budget and business plan. results before they are submitted to the Board. It reviews with the external auditors the nature, scope and cost of their work, discusses with them the results thereof, reviews The Board has also delegated specific responsibilities to Board committees, notably the the audit plans and findings of the Group’s internal audit function and any related party Audit, Remuneration and Nomination Committees. Directors receive Board and transactions entered into by the Group. The Audit Committee has the power to seek Committee papers several days in advance of Board and Committee meetings and also external advice as and when required. have access to the advice and services of the Company Secretary. In addition, the Board members have access to external professional advice at the Company’s expense. Nomination Committee On 17 September 2002, the Company established a Nomination Committee of the Appointments of Independent Non-Executive Directors are for an initial term of three Board following the Board’s confirmation in the previous year’s Annual Report that it years, subject to election by shareholders following appointment, subsequent re-election intended to establish a Nomination Committee. On 17 September 2003, the Company by shareholders, and Companies Act provisions relating to the removal of Directors. appointed Lord St John of Fawsley and John Thornton as the Committee members. In addition, re-appointment for a further term is not automatic but may be made by Since there are only two members there is no Chairman. During the year Jacques mutual agreement. Nasser, Gail Rebuck, Lord Wilson of Dinton, James Murdoch and Chase Carey were all nominated by the Nomination Committee for appointment to the Board. In previous years the Articles of Association of the Company permitted News Corporation or a subsidiary of News Corporation to appoint a number of Directors dependent on its The Company has from time to time engaged executive search consultants to assist with shareholding in the Company. BSkyB Holdco, Inc. (“Holdco”), a subsidiary of News the recruitment of Independent Non-Executive Directors. Corporation, had the right to appoint five Directors to the Board. The Directors so appointed were not subject to election by shareholders, nor were they required to retire Appointment of Directors by rotation as required by the Code. Jacques Nasser and Gail Rebuck were appointed to the Board on 8 November 2002.

At the Company’s Annual General Meeting held on 8 November 2002, resolutions were Lord Wilson of Dinton was appointed to the Board on 13 February 2003. put to the shareholders of the Company whereby new Articles of Association would be adopted, cancelling News Corporation’s special right to appoint Directors to the Board Martin Pompadur and Leslie Hinton resigned from the Board on 13 February 2003 and and the five Directors so appointed by News Corporation would be put forward for were replaced by Chase Carey and James Murdoch. appointment by shareholders. These Directors would then be subject to the normal retirement by rotation provisions that are applicable to all other Directors. These Communication with Shareholders resolutions were also conditional on another three Independent Non-Executive Directors The Company is keen to maintain a dialogue with institutional shareholders in order to being appointed to the Board. The resolutions were passed by the shareholders of the ensure that the objectives of both the Company and the shareholders are understood. Company and became effective on 13 February 2003, when Lord Wilson of Dinton was A programme of meetings with institutional shareholders, fund managers and analysts appointed as the eighth Independent Non-Executive Director of the Board. takes place each year. The Company also makes presentations to analysts and fund managers following the half year and full year results of the Company. All the Directors of the Company now comply with the requirement for Directors to retire and offer themselves for re-election at least once every three years. The Board views the Annual General Meeting as an opportunity to communicate with private investors and sets aside time at these meetings for shareholders to ask The Group Executive Committee generally meets on a weekly basis to allow prompt questions of the Board. All members of the Board are encouraged to attend the meeting. decision making and discussion of relevant business issues. It is chaired by the Chief The Chairman provides a brief resume of the Company’s activities for the previous year Executive Officer and comprises the Chief Financial Officer and other senior executives to the shareholders. from within the Group. The Company, in accordance with the Code, announces the number of proxy votes cast Board Committees on resolutions at the Annual General Meeting. The Articles of Association formerly contained certain rights for Holdco, dependent on its shareholding in the Company, to appoint and remove members of any standing Committee established by the Board. Holdco had the right to appoint two members to any such Committee. These rights were also cancelled upon the adoption of the new Articles of Association by a Special Resolution of the Company at the Annual General Meeting, which was effective from 13 February 2003.

24 Annual Report and Accounts 2003 British Sky Broadcasting Group plc Corporate Governance continued

Directors’ responsibilities The responsibilities of the Directors are set out on page 31.

Internal control The Directors have overall responsibility for establishing and maintaining the Group’s systems of internal control and risk management and for reviewing their effectiveness. These systems are designed to manage, and where possible eliminate, the risk of failure to achieve business objectives and to provide reasonable but not absolute assurance against material misstatement or loss. An ongoing process for identifying, evaluating and managing the significant risks faced by the Group has been established, in accordance with the guidance of the Turnbull Committee on internal control issued in September 1999. This process has been in place for the whole of the year ended 30 June 2003 and up to the date the financial statements were approved.

The Audit Committee, on behalf of the Board, considers the effectiveness of the operation of the Group’s systems of internal control and risk management during the year and this review has been carried out for the year ended 30 June 2003 and up to the date the financial statements were approved. This review relates to the Company and its subsidiaries and does not extend to joint ventures. The Audit Committee meets on at least a quarterly basis with the Group’s internal audit team and the external auditors.

There is a comprehensive budgeting process and the annual budget, which is regularly reviewed and updated, is approved by the Board. Risk assessment and evaluation take place as an integral part of this process. Performance is monitored against budget through weekly and monthly reporting cycles. Monthly reports on performance are provided to the Board and the Group reports to shareholders each quarter.

Each area of the business carries out risk assessments of its operations and ensures that the key risks are addressed. A Risk Management Committee, chaired by the Chief Financial Officer and comprising senior executives, reviews the management of risks in all areas of the business on a cyclical basis. The results of the Risk Management Committee’s review are integral to the budgeting and forecasting process and are integrated into the internal audit planning.

The internal audit team provides objective assurance as to the effectiveness of the Group’s systems of internal control and risk management to the Group’s operating management and to the Audit Committee.

Use of external auditors The Group has a policy on the provision by the external auditors of audit and non-audit services, which categorises such services between: – those services which the auditors are prohibited from providing; – those services which are acceptable for the auditors to provide and the provision of which has been pre-approved by the Audit Committee; and – those services for which the specific approval of the Audit Committee is required before the auditors are permitted to provide the service.

The policy defines the types of services falling under each category and sets out the criteria which need to be met and the internal approval mechanisms required to be completed prior to any engagement. An analysis of all services provided by the external auditors is reviewed by the Audit Committee at each meeting.

For the year ended 30 June 2003, the Audit Committee has discussed the matter of audit independence with Deloitte & Touche LLP, the Group’s external auditors, and has received and reviewed confirmation in writing that, in Deloitte & Touche LLP’s professional judgement, Deloitte & Touche LLP is independent within the meaning of regulatory and professional requirements and the objectivity of the audit engagement partner and audit staff is not impaired.

British Sky Broadcasting Group plc Annual Report and Accounts 2003 25 Report on Directors’ Remuneration

Remuneration Committee variable performance-related incentive arrangements. This policy ensures that a John Thornton (Chairman), David Evans, Jacques Nasser, Rupert Murdoch and significant proportion of the remuneration of the Executive Directors and Senior David DeVoe. Executives is aligned with corporate performance, generating a strong alignment of management’s interests with those of shareholders. The Remuneration Committee’s (“the Committee’s”) terms of reference are principally concerned with the remuneration (in all its forms) of main Board Directors and other senior For both Executive Directors, the performance element of total remuneration is currently executives of the Group with a basic salary of at least £250,000 per annum (“Senior targeted at over 70%. It is intended that this balance should continue. Executives”), other than key production personnel or on-air talent. The Committee meets not less than once a year, has access to information and advice provided from external 3. Basic salary sources and from sources within the Group, and ensures that: The basic salary for each Executive Director and Senior Executive is determined by the Committee taking account of the recommendation of the Chief Executive Officer a) the salary, benefits and pension arrangements of the Executive Directors and Senior (other than in respect of his own salary), and information provided from external sources Executives are competitive, but fair; relative to the industry sector in which the Company operates. b) awards under the Company’s Approved and Unapproved Executive Share Option 4. Senior management bonus scheme Schemes (“the Executive Schemes”), Additional Executive Bonus Scheme, Long- Executive Directors and Senior Executives participate in a bonus scheme under which Term Incentive Plan (“LTIP”) and Equity Bonus Plan (“EBP”) are consistent with the awards are made to participants at the discretion of the Committee. The level of Group’s overall performance and provide an additional incentive to management; and award is dependent on both personal performance during the relevant financial year and the performance of the Group through the achievement of commercial and strategic objectives. c) there is an objective and independent assessment of benefits granted to Executive Directors and Senior Executives. 5. Pension benefits The Group provides pensions to eligible employees through the BSkyB Pension Plan Advisors to the Committee which is a defined contribution plan. Employees may contribute up to 4% of basic salary The Group uses the services of Deloitte & Touche LLP Executive Compensation Consulting, into the scheme each year and the Group matches this up to a maximum of 8% of basic who replaced Arthur Andersen on 1 August 2002, in providing advice on remuneration salary. Contributions into the approved plan are subject to Inland Revenue limits. The matters of the Committee. Deloitte & Touche LLP has been appointed by the Group and Group does not currently operate a Supplementary Pension Scheme in excess of the provide advice as required by the Committee. The Committee also consults with the Chief Inland Revenue earnings cap. Executive Officer and Chief Financial Officer. They are invited to attend meetings of the Committee, although no Director participates in discussions concerning his own During the year the Company reviewed the operation of its pension arrangements for remuneration. Deloitte & Touche LLP also acts as the Group’s auditors, and provide other Executive Directors and Senior Executives whose Pension Plan contributions are services to the Group as detailed in Note 7 to the financial statements. restricted due to Inland Revenue limits. For these Executives, in the first instance, employee contributions are reduced and where employer contributions need to be Compliance restricted, a cash supplement is paid to the individual equal to the shortfall in the 8% The Auditors’ Report set out on page 31 confirms that the scope of their work covers employer contribution rate. the amounts disclosed relating to the emoluments, share options, LTIP and EBP interests and pension benefits of the Directors contained in sections 13 to 18 of During the year, a one-off payment was made to Tony Ball in recognition of the historical this report in accordance with the Companies Act. These sections are identified as shortfall in his pension arrangements. This sum was equal to the difference between the “audited” below. contributions as limited by the Inland Revenue cap and the 8% of pensionable salary since he joined the BSkyB Pension Plan. 1. Remuneration policy for the Executive Directors and Senior Executives 6. Performance graph The Committee operates a policy of competitive remuneration packages to attract, The following graph shows the Company’s performance measured by total shareholder retain and motivate Executive Directors and Senior Executives of the highest calibre. return (“TSR”) for the five years to 30 June 2003, compared with the TSR of the The Committee keeps its remuneration policies under review in the light of Company FTSE 100 companies over the same period. Total Shareholder Return is defined as and market developments. share price growth plus reinvested dividends. The FTSE 100 has been selected for this comparison because this is the principal index in which the Company’s shares are listed. Since flotation, remuneration has played an important part in motivating management The performance of the FTSE 350 Media and Entertainment index over the same period in the delivery of outstanding performance for shareholders. At the outset there was a is also shown for comparative purposes. clear commitment to provide outstanding rewards to Executive Directors and Senior Executives only if shareholders had also benefited. Incentives have therefore been Total shareholder return for the period 1 July 1998 to 30 June 2003 tailored to support the delivery of key corporate objectives. The LTIP was introduced in conjunction with the launch of the digital platform and was designed to reward % executives only if tough business targets were exceeded and this resulted in superior 500 returns for shareholders. Historically, therefore, there has been a strong link between 450 corporate performance and individual reward, and this continues to be a key focus 400 through the operation of the LTIP and the EBP, which was introduced in 2002. 350 A key part of this policy has been to structure rewards such that a high proportion 300 of Executive Directors’ and Senior Executives’ total compensation is paid in BSkyB 250 shares. Awards under incentive plans continue to be subject to the achievement of 200 tough targets based on out-performance of comparator groups, as well as commercial 150

targets such as build-up, yield and retention of the subscriber base, profitability and TSR Index at 1 July 1998 = 100 100 cash flow generation. 50 0 The emphasis continues to be on rewards linked to performance and BSkyB shares, Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 rather than the provision of long-term security through pensions, and therefore pension 1999 2000 2001 2002 2003 opportunities of Executive Directors and Senior Executives comprise only a defined contribution scheme, in which the Group’s contributions are limited to 8% of basic BSkyB FTSE 100 Index FTSE 350 Media and Entertainment Index salary. No other elements of remuneration are pensionable. 7. Long-Term Incentive Plan The Group’s remuneration policy also reflects the dynamic, competitive and entrepreneurial The Company operates a Long-Term Incentive Plan for Executive Directors and Senior markets in which the Group operates, and recognises and rewards key talent throughout Executives. An award under the existing LTIP comprised a retention element Core the organisation using BSkyB shares. In addition to rewarding Executive Directors and Award (which makes up 5% of the award) and a Performance Award (which makes up Senior Executives, the Group’s policy is to extend share ownership opportunities to all 95% of the award). The Core Award vests dependent on continued service with the employees by the widespread grant of share options under the Executive Schemes, through Group for a specified period and is not subject to the performance conditions. It is the “Millennium Grant”, and the operation of the Sharesave scheme (see section 10). intended that no future Core Awards will be made under the LTIP. The Performance Award vests, in full or in part, dependent on the satisfaction of specified performance Executive Directors are allowed to take up external appointments as non-executive targets. Awards are not transferable or pensionable and are made over a number of directors and the Directors retain any payments in respect of these appointments. shares in the Company, determined by the Committee. Awards may be in a variety of forms, including grants of shares, nil-priced options or market-value options with a cash 2. Total remuneration – fixed versus variable pay bonus, all of which would have the same value to the participant. Remuneration for Executive Directors and Senior Executives consists of basic salary, performance-related bonuses, share incentive schemes and benefits including defined Measurements of the extent to which performance targets have been met are reviewed contribution pensions, life assurance, medical insurance and company cars, or by the Committee at the date of vesting of each award, taking account of independent company car allowances. The remuneration package is significantly weighted towards advice as necessary.

26 Annual Report and Accounts 2003 British Sky Broadcasting Group plc Report on Directors’ Remuneration continued

Awards may be made to any employee or full time Director of the Group at the The table below sets out the proportion of the award that could potentially vest discretion of the Committee. During the year, awards under the plan were made to Tony according to performance against the international media and telecommunications Ball and Martin Stewart and other key Senior Executives. Further information on the sector comparator group. However, this level of vesting is only achievable if the awards to the Executive Directors can be found in Section 16 of this report. Company also meets the stretching commercial targets in full.

Outstanding awards under the LTIP take the form of a market value option with a cash Company position against international Maximum percentage of award bonus equal to the lower of exercise price and the share price at the date of exercise media and telecommunications that may vest if commercial with the exception of shares awarded as part of an agreement to meet the employer’s sector comparator group measures targets are met in full National Insurance obligations, which do not attract a cash bonus. Where the market 1st or 2nd out of 9 100% price of a share at the date of vesting is below the exercise price, awards in this form 3rd or 4th out of 9 95% have been treated as having lapsed and participants have been eligible to receive 5th or 6th out of 9 75% shares for no consideration, equal to the value of their vested award. 7th or lower out of 9 (Core Award) 60% 2002 awards Performance measures for the 2002 LTIP focus on rewarding performance which results If threshold commercial targets are not met then vesting for the first or second highest in maximised returns to shareholders. For the award made in 2002 the Committee TSR would reduce to below 25%. The vesting at other positions against the comparator determined that the performance targets should be based on a comparison of the group (3rd or 4th highest TSR, 5th or 6th highest TSR, 7th highest or lower) would also Company’s relative total shareholder return performance against both the FTSE 100 reduce, to 12%, 9% and 5% (Core Award) respectively. and the international media and telecommunications sector. The awards only vest in full for outstanding performance against both of these comparator groups. Total shareholder The commercial targets are based on stretch measures in the following areas: DTH return has been selected as the target as it is a clear indicator of the value created for churn rate, average revenue per user, operating cash flow margin, gross margin, profit shareholders, and is a widely accepted measure of performance. before tax and total DTH subscribers. Performance at less than 85% of these stretching targets results in the threshold level, which would result in no vesting in respect of the The selected comparator companies from the international media and commercial measures. telecommunications sector were as follows: Carlton Communications; EMAP; Granada; MediaSet; ntl; RTL; SMG; Telewest Communications; Viacom; Vivendi Universal; 2000 Award Walt Disney. 50% of the awards granted in November 2000 vested in full on 3 November 2002 as to 400,000 shares (Tony Ball) and 200,000 shares (Martin Stewart). The additional The table below sets out the proportion of the award that vests according to options which were granted in respect of the National Insurance enhancement, 54,000 performance against the international media and telecommunications sector (Tony Ball) and 27,000 (Martin Stewart), fall away if exercised when the market price is comparator group and the FTSE 100. below the exercise price. This is as a result of the Company being placed first against the media comparator group in terms of total shareholder return for the period November 2000 to November 2002, and for the achievement of the commercial targets Percentage of award that vests at 3 November 2002 using a number of key business performance measures based on Company position DTH churn rate, average revenue per user, operating cash flow margin, gross margin, against the FTSE 100 profit before tax and total DTH subscribers. The media comparator companies for the Company position against international Upper Upper total shareholder return performance measure were: Carlton Communications; media and telecommunications Median quartile decile or Granada; MediaSet; ntl; RTL; SMG; Telewest Communications; and Vivendi Universal. sector comparator group or above or above or above The Company’s share price on 3 November 2002 was £5.75, and the total market value of the award which vested was £3.5 million. At 30 June 2003, Tony Ball and Martin 1st out of 12 70% 80% 100% 100% Stewart had not exercised their rights to receive these shares. 2nd out of 12 60% 70% 95% 100% 3rd out of 12 50% 65% 80% 90% The balance of the awards granted in November 2000 vested in full on 30 June 2003 4th out of 12 45% 55% 65% 75% as to 400,000 shares (Tony Ball) and 200,000 shares (Martin Stewart). The additional 5th out of 12 40% 50% 60% 70% options which were granted in respect of the National Insurance enhancement, 54,000 6th out of 12 30% 40% 50% 60% (Tony Ball) and 27,000 (Martin Stewart), fall away if exercised when the market price is 7th or lower out of 12 (Core Award) 5% 5% 5% 5% below the exercise price. This is as a result of the Company being placed first against the media comparator group in terms of total shareholder return for the period Up to half of the award may vest two years after grant, subject to the achievement of the November 2000 to June 2003, and for the achievement of the commercial targets at performance conditions at that date, with the remaining 50% and any unvested portion 30 June 2003 using a number of key business performance measures based on DTH becoming eligible for vesting after three years, subject to the achievement of the churn rate, average revenue per user, operating cash flow margin, gross margin, profit performance conditions at that date. before tax and total DTH subscribers. The media comparator companies for the total shareholder return performance measure were: Carlton Communications; Granada; 2001 awards MediaSet; ntl; RTL; SMG; Telewest Communications; and Vivendi Universal. The 50% of the award granted in November 2001 vested in full on 30 June 2003 as to 400,000 Company’s share price on 30 June 2003 was £6.72, and the total market value of the shares (Tony Ball) and 200,000 shares (Martin Stewart). The additional options which were award which vested was £4.0 million. At 30 June 2003, Tony Ball and Martin Stewart granted in respect of the National Insurance enhancement, 54,000 (Tony Ball) and had not exercised their rights to receive these shares. The vesting date for this award 27,000 (Martin Stewart), fall away if exercised when the market price is below the was amended during the year from an original vesting date of 3 November 2003 to 30 exercise price. This is as a result of the Company being placed second against the media June 2003, in order to align the vesting date with the Company’s financial year. Based comparator group in terms of total shareholder return for the period November 2001 to on current information, the amendment to the vesting date is not expected to have June 2003, and for the achievement of the commercial targets at 30 June 2003 using a affected the proportion of the award that vested during the year. number of key business performance measures based on DTH churn rate, average revenue per user, operating cash flow margin, gross margin, profit before tax and total DTH Other broadly similar arrangements are operated for certain senior management not subscribers. The media comparator companies for the total shareholder return participating in the LTIP under the terms of a Key Contributor Plan (“KCP”). Shares used performance measure were: Carlton Communications; Granada; MediaSet; ntl; RTL; SMG; to satisfy KCP awards are acquired by the Employee Share Ownership Plan (“ESOP”) Telewest Communications; and Vivendi Universal. The Company’s share price on this date in the market. was £6.72, and the total market value of the award which vested was £4.0 million. At 30 June 2003, Tony Ball and Martin Stewart had not exercised their rights to receive these 8. Equity Bonus Plan shares. The vesting date for this award was amended during the year from an original vesting date of 31 July 2003 to 30 June 2003, in order to align the vesting date with the 2002 Awards Company’s financial year. The amendment to the vesting date did not affect the proportion of the award that vested during the year. During the year the Company introduced an Equity Bonus Plan for Executive Directors and Senior Executives. This plan rewards performance against key commercial measures The unvested portion of the award made in 2001 will vest on 30 June 2004 subject to the over the financial year, with stretching targets derived from the Group’s business plan. achievement of performance conditions at that date based on a combination of the Awards under the plan are made in the form of BSkyB shares, subject to performance Company’s performance against stretching targets established for a range of commercial achieved in the financial year. The awards of these shares are deferred in equal amounts measures together with a comparison of the Company’s relative total shareholder return for a further one and two years, subject to continuing employment. performance against the international media and telecommunications sector. The awards only vest in full for outstanding performance against both performance measures. The At 30 June 2003, the commercial measures for the awards made in August 2002 selected comparator companies from the international media and telecommunications were achieved in full. The awards granted to Tony Ball and Martin Stewart will vest in equal sector are as follows: Carlton Communications; Granada; MediaSet; ntl; RTL; SMG; amounts subject to their remaining in continued employment with the Group at 31 July Telewest Communications; Vivendi Universal. 2004 and 31 July 2005. EBP awards may be made to any employee or full time Director of the Group at the discretion of the Committee. Shares used to satisfy these awards are acquired by the ESOP in the market.

British Sky Broadcasting Group plc Annual Report and Accounts 2003 27 Report on Directors’ Remuneration continued

9. Additional Executive Bonus Scheme In accordance with paragraph 2 of Schedule A to the Combined Code, the options that The Company has operated an Additional Executive Bonus Scheme in which were granted to the Chief Executive Officer in June 2002 will normally be capable of beneficiaries who participate have the right to receive the growth in value on a number exercise three years from the date of grant. of notional shares. No awards have been made under this scheme since 1999 when awards were made to Tony Ball on his commencement of employment as CEO. The In accordance with an agreement with the Inland Revenue, the Group can, with the vesting of these awards was subject to one of the following targets: consent of the employee, pass on to the employee the cost of employers’ National a) “Performance Target”: Earnings per share (“EPS”) growth over three years greater Insurance Contributions on the exercise of share options granted to UK employees than the percentage increase in RPI over the period; or the under the Unapproved Executive Share Option Scheme. In order to compensate b) “Alternative Performance Target”: Increase in operating income over three years employees for this extra cost, additional options have been granted under the greater than the percentage increase in RPI plus 5% over the period. Under this Unapproved Executive Share Option Scheme to ensure that the employees, as far as target the costs of digital investment may be added back to the operating income possible, are no worse off than if the National Insurance cost was not passed to them. figure. Millennium award These rights were deemed to vest on 12 August 2002, following the achievement of the In addition to the awards set out above, in December 2000 the Company made an Alternative Performance Target. These awards must be exercised by 12 August 2006. award over 500 shares to all employees who had not been granted options or awards under the LTIP or the Executive Schemes in that year. These awards were made under On exercise, the Group will pay a cash sum equal to accrued gains on the notional the Approved Executive Share Option Scheme and become exercisable three years shares, subject to deduction of any tax. Accrued gains will be calculated by reference from the date of grant. There are no performance conditions attached to this award. to the difference between the middle market price of the shares at the date of exercise and the price at which the notional shares were granted. Alternatively, the Company Sharesave Scheme may elect to transfer to the holders shares of equal value to the accrued gains, in The Sharesave Scheme is open to all employees, including Executive Directors. Options satisfaction of the Group’s obligation to pay any accrued gains. are normally exercisable after either three, five or seven years from the date of grant. The price at which options are offered is not less than 80% of the middle-market price 10. Share Option Schemes on the dealing day immediately preceding the date of invitation. It is the policy of the The Company operates the Executive Schemes and a Sharesave Scheme. Group to make an invitation for the employees to participate in the scheme following the announcement of the end of year results. Executive Schemes With the exception of ad hoc awards made to certain individuals on hiring, grants under 11. Service contracts the Executive Schemes have been made, and continue to be made, on an annual basis. Tony Ball has an employment contract with the Company which was deemed to Executive Directors who participate in the LTIP and EBP do not participate in the commence on 2 June 1999 and which expires on 31 May 2004. The contract can be Executive Schemes annual options award. No options were granted to any of the terminated by the Company subject to the payment of two years’ salary, bonus and Executive Directors under the Executive Schemes during the year. benefits or, if the contract is not extended at expiry, of one year’s salary, bonus and benefits. The Committee is aware that this notice period is not consistent with the provisions of the The Company follows a policy of granting options to eligible employees linked to salary. Combined Code and, for this reason, the Committee considered very carefully what was This is then subject to approval by the department heads who may recommend that the in the Company’s interest. Taking into account the very competitive nature of the media individual receives an additional allocation for exceptional performance. There is no limit industry for top executives and the need for the Group to have access to the most able on the number of share options that may be granted to an individual (other than for the management, the Committee concluded that this contract was in the interests of the purposes of granting Inland Revenue approved options), however, any proposal to shareholders. Tony Ball’s remuneration consists of a base salary of £762,134, plus an make a one-off grant of share options over four times salary would require the prior annual cost of living provision and an annual bonus based on performance criteria to be approval of the Remuneration Committee (irrespective of the employee’s level of salary). agreed by the Committee but to be no less than £500,000 annually. Tony Ball is also No such grant has been made to date. entitled to other benefits, namely pension benefits, company car, life assurance equal to four times base salary and medical insurance. He also participates in the LTIP, EBP, The performance conditions for option awards granted before August 2002 were based Additional Executive Bonus Scheme and Executive Schemes. on key strategic measures for the Group, including subscriber growth measures, profit before tax and EPS targets. Martin Stewart has an employment contract with the Company which was deemed to commence on 1 December 1998 and shall continue unless, or until, terminated by For awards made during the year ended 30 June 2003, the performance target was either party giving to the other not less than 12 months’ notice in writing. Martin based on EPS. The use of EPS as a performance measure for the awards aligns the Stewart’s remuneration consists of a base salary of £400,000 per annum and an annual interests of employees with shareholders. Growth in EPS will have to exceed RPI plus discretionary bonus to be agreed by the Committee. He is also entitled to other 3% per annum in order for awards to vest. Given that EPS was negative at the date of benefits, namely pension benefits, company car, life assurance equal to four times base grant, growth is to be measured from the actual EPS achieved for the year to salary and medical insurance. He also participates in the LTIP and EBP. 30 June 2003. 12. Non-Executive Directors Measurements of the extent to which performance targets have been met are The basic fees payable to the Non-Executive Directors are set by the Board of Directors and reviewed by the Committee at the date of vesting of each award, taking are currently £36,750 each per annum. It is intended that in future these will be increased account of independent advice as necessary. on an annual basis by 5% or RPI, whichever is the greater, unless the Board determines otherwise. The Non-Executive Directors are paid an additional £5,000 per annum each, for In August 1999, options over 600,000 shares were granted to Tony Ball. These became membership of each of the Audit Committee, the Remuneration Committee and the exercisable during the year. The vesting of these options was subject to the following Nomination Committee. The Chairman of the Audit Committee and the Chairman of the performance targets: Remuneration Committee each receive an additional £5,000 per annum. Each Independent a) “Performance Target”: EPS growth over three years greater than the percentage Non-Executive Director is engaged by the Company for an initial term of three years, at increase in RPI over the period; or the which time the individual and the Board will both review whether or not the Independent b) “Alternative Performance Target”: Increase in operating income over three years Non-Executive Director should continue in that position. Prior to the November 2002 AGM, greater than the percentage increase in RPI plus 5% over the period. Under this target only Independent Directors received fees. the costs of digital investment may be added back to the operating income figure.

These rights were deemed to vest on 12 August 2002, following the satisfaction of the Alternative Performance Target. The share price on this date was below the exercise price of £5.83.

In June 2002 options over 600,000 shares were granted to Tony Ball at an exercise price of £7.35 as part of the arrangements agreed on the renewal of his service contract. The performance target attaching to these options is based on the achievement of commercial measures relating to DTH subscriber number targets. This aligns the performance measure for this award with current business strategy.

Following approval by shareholders at the 2000 AGM, options granted after November 2000 may be exercised over a phased period of years, provided that, in normal circumstances, no part of an option will be capable of exercise earlier than one year from the date of grant. Awards made during the year ended 30 June 2003 become capable of vesting over a period of four years, with one third of the award capable of vesting annually in each of years two, three and four, subject to the achievement of the performance target.

28 Annual Report and Accounts 2003 British Sky Broadcasting Group plc Report on Directors’ Remuneration continued

13. Directors’ emoluments (audited)

The emoluments of the Directors for the year are shown below:

Total Total Total emoluments Total emoluments emoluments including emoluments including Salary Bonus before pensions before pensions and fees scheme Benefits pensions Pensions 2003 pensions Pensions 2002 £££££££££

Executive Tony Ball 762,134 1,500,000 41,436 2,303,570 156,167 2,459,737 2,020,723 28,620 2,049,343 Martin Stewart 400,000 500,000 24,750 924,750 31,686 956,436 687,169 26,348 713,517

Non-Executive Rupert Murdoch 17,741 – – 17,741 – 17,741 ––– Philip Bowman 46,750 – – 46,750 – 46,750 45,000 – 45,000 Chase Carey (i) 13,946 – – 13,946 – 13,946 ––– David DeVoe 17,741 – – 17,741 – 17,741 ––– David Evans 39,994 – – 39,994 – 39,994 27,057 – 27,057 Allan Leighton 41,750 – – 41,750 – 41,750 39,698 – 39,698 James Murdoch (ii) 13,946 – – 13,946 – 13,946 ––– Jacques Nasser (iii) 26,923 – – 26,923 – 26,923 ––– Gail Rebuck (iv) 25,596 – – 25,596 – 25,596 ––– Arthur Siskind 15,843 – – 15,843 – 15,843 ––– Lord St. John of Fawsley 40,673 – – 40,673 – 40,673 35,000 – 35,000 John Thornton 53,744 – – 53,744 – 53,744 49,522 – 49,522 Lord Wilson of Dinton (v) 13,946 – – 13,946 – 13,946 ––– Les Hinton (vi) ––––––––– Martin Pompadur (vii) ––––––––– Total emoluments 1,530,727 2,000,000 66,186 3,596,913 187,853 3,784,766 2,904,169 54,968 2,959,137

(i) Chase Carey was appointed a Director of the Company on 13 February 2003. (ii) James Murdoch was appointed a Director of the Company on 13 February 2003. (iii) Jacques Nasser was appointed a Director of the Company on 8 November 2002. (iv) Gail Rebuck was appointed a Director of the Company on 8 November 2002. (v) Lord Wilson of Dinton was appointed a Director of the Company on 13 February 2003. (vi) Les Hinton resigned as a Director of the Company on 13 February 2003. (vii) Martin Pompadur resigned as a Director of the Company on 13 February 2003.

14. Executive bonuses (audited)

The amounts received by the Directors under bonus schemes for the year are shown below:

Additional Senior executive management bonus bonus scheme (i) scheme (ii) Total £££

Executive Tony Ball – 1,500,000 1,500,000 Martin Stewart – 500,000 500,000 i) Additional Executive Bonus Scheme Tony Ball has rights over 600,000 notional shares which became exercisable during the year. The notional shares have an exercise price of £5.35 but the gain on exercise is limited to a maximum of 48 pence per notional share. These rights have not been exercised. The performance measures in relation to this award are set out in Section 9. During the year ended 30 June 2003 no shares (notional or actual) have been awarded or exercised under this scheme. ii) Senior Management Bonus Scheme The amounts shown above are those which have been approved by the Committee for the year ended 30 June 2003.

15. Pension (audited) The amounts received by the Directors under pension arrangements are detailed below.

Tony Ball received a one-off payment of £113,883 (see section 5) and a further payment of £10,421 in relation to the shortfall in his pension arrangements. Employer contributions of £31,863 were paid into the BSkyB Pension Plan.

Martin Stewart received a further payment of £4,213 (see section 5) in relation to the shortfall in his pension arrangements. Employer contributions of £27,473 were paid into the BSkyB Pension Plan.

British Sky Broadcasting Group plc Annual Report and Accounts 2003 29 Report on Directors’ Remuneration continued

16. LTIP (audited)

Details of outstanding awards receivable under the LTIP are shown below:

Number of shares under award At Granted Exercised At Market price Date 30 June during the during the 30 June Exercise at date from which Expiry 2002 year year 2003 price of exercise exercisable date

Name of Directors Tony Ball 454,000 (i) – – 454,000 £10.04 n/a 03.11.02 03.11.10 454,000 (i) – – 454,000 £10.04 n/a 30.06.03 03.11.10 454,000 (i) – – 454,000 £8.30 n/a 30.06.03 21.11.11 454,000 (ii) – – 454,000 £8.30 n/a 30.06.04 21.11.11 – 227,110 (iii) – 227,110 £5.55 n/a 31.07.04 31.07.12 – 227,110 (iii) – 227,110 £5.55 n/a 31.07.05 31.07.12 – 11,466 (iii) – 11,466 £5.60 n/a 31.07.04 31.07.12 – 11,466 (iii) – 11,466 £5.60 n/a 31.07.05 31.07.12 Martin Stewart 227,000 (i) – – 227,000 £10.04 n/a 03.11.02 03.11.10 227,000 (i) – – 227,000 £10.04 n/a 30.06.03 03.11.10 227,000 (i) – – 227,000 £8.30 n/a 30.06.03 21.11.11 227,000 (ii) – – 227,000 £8.30 n/a 30.06.04 21.11.11 – 113,555 (iii) – 113,555 £5.55 n/a 31.07.04 31.07.12 – 113,555 (iii) – 113,555 £5.55 n/a 31.07.05 31.07.12 – 5,733 (iii) – 5,733 £5.60 n/a 31.07.04 31.07.12 – 5,733 (iii) – 5,733 £5.60 n/a 31.07.05 31.07.12

Awards under the LTIP take the form of a market value option with a cash bonus equal to the lower of the exercise price and the share price at the date of exercise, with the exception of shares awarded as part of an agreement to meet the employer’s National Insurance obligations, which do not attract a cash bonus.

Notes: (i) These awards vested during the year. The performance conditions in relation to these awards are set out in Section 7.

(ii) These awards will vest subject to meeting performance conditions on 30 June 2004. The vesting date for this award was amended during the year from an original vesting date of 31 July 2004, in order to align the vesting date with the Company’s financial year.

(iii) In August 2002 awards were granted over performance periods ending in July 2004 and July 2005. The performance conditions in relation to these awards are set out in Section 7.

17. Equity Bonus Plan (audited)

Number of shares under award At Granted Exercised At Market price Date 30 June during the during the 30 June Exercise at date from which Expiry 2002 Year Year 2003 price (i) of exercise exercisable date

Name of Directors Tony Ball – 52,000 – 52,000 n/a n/a 31.07.04 31.07.12 – 52,000 – 52,000 n/a n/a 31.07.05 31.07.12 Martin Stewart – 26,000 – 26,000 n/a n/a 31.07.04 31.07.12 – 26,000 – 26,000 n/a n/a 31.07.05 31.07.12

Note: (i) Awards under the Equity Bonus Plan (“EBP”) take the form of a contingent right to acquire existing BSkyB shares at the vesting date, for nil consideration.

The performance conditions applicable to the awards under the EBP were measured at 30 June 2003. The plan will deliver the shares in equal measures at 31 July 2004 and 31 July 2005.

18. Executive share options (audited)

Details of all outstanding options held under the Executive Schemes and Sharesave Scheme are shown below:

Number of options At Granted Exercised At Market price Date 30 June during the during the 30 June Exercise at date from which Expiry 2002 Year Year 2003 price of exercise exercisable date

Name of Directors Tony Ball 5,145(i) – – 5,145 £5.83 n/a 12.08.02 12.08.09 594,855(i) – – 594,855 £5.83 n/a 12.08.02 12.08.06 600,000 (ii) – – 600,000 £7.35 n/a 05.06.05 05.06.12 Martin Stewart 2,096 (iii) – 2,096 – £4.62 £6.62 – –

Notes: (i) The options granted to Tony Ball on 12 August 1999 became exercisable during the year. The performance conditions for these options are set out in Section 10. (ii) The performance conditions for these awards are as set out in section 10. (iii) Options granted under the Company’s Sharesave Scheme. These options were exercised on 22 May 2003 following their maturity, however the shares are still held by Martin Stewart. The gain on exercise of the Sharesave options was £4,192. Options under the Company’s Sharesave scheme are not subject to performance conditions. During the year ended 30 June 2003 the share price traded within the range of £4.58 to £7.06 per share. The middle-market closing price on the last working day of the financial year was £6.72.

30 Annual Report and Accounts 2003 British Sky Broadcasting Group plc Report on Directors’ Remuneration continued

19. Share interests

The interests of the Directors in the Ordinary Share capital of the Company during the Approximately 30% of the Ordinary Shares of News Corporation Limited (“News Corp”) year were: are owned by either (i) Mr. Murdoch (ii) Cruden Investments Pty. Limited, a private Australian investment company owned by Mr. Murdoch, members of his family, including James Murdoch, his son and a director of the Company and various corporations and At 30 June 2003 At 30 June 2002 trusts, the beneficiaries of which include Mr. Murdoch, members of his family and certain charities, or (iii) corporations, which are controlled by trustees of settlements and trusts set up for the benefit of the Murdoch family, certain charities and other persons. Lord St John of Fawsley 2,000 2,000 Lord Wilson of Dinton 486 – Holdco, a significant shareholder in the Group, is a subsidiary of News Corp. Martin Stewart 2,096 – News Corporation Group has significant transactions with the Group as set out in of the Except as disclosed in this report, no other Director held any interest in the share financial statements. capital, including options, of the Company, or of any subsidiary of the Company, during the year. All interests at the date shown are beneficial and there have been no changes Signed on behalf of the Board between 1 July 2003 and 11 August 2003. The ESOP is interested in 5,457,012 Ordinary Shares in which the Directors who are David Gormley employees are deemed to be interested by virtue of Section 324 of the Companies Act Company Secretary 1985 (see note 15 of the financial statements). 11 August 2003

Directors’ Responsibilities

United Kingdom company law requires the Directors to prepare financial statements for In preparing these financial statements, the Directors are required to: each financial year which give a true and fair view of the state of affairs of the Company – select suitable accounting policies and then apply them consistently; and the Group at the end of the financial year and of the profit or loss of the Group for – make judgements and estimates that are reasonable and prudent; and that period. – state whether applicable accounting standards have been followed.

After making enquiries, the Directors have formed a judgement, at the time of approving The Directors are responsible for keeping proper accounting records which disclose with the financial statements, that there is a reasonable expectation that the Group has reasonable accuracy at any time the financial position of the Company and enable them adequate resources to continue in operational existence for the foreseeable future. For to ensure that the financial statements comply with the Companies Act 1985. They are this reason the Directors continue to adopt the going concern basis in preparing the also responsible for safeguarding the assets of the Company and hence for taking financial statements. reasonable steps for the prevention and detection of fraud and other irregularities.

Auditors’ Report

Independent Auditors’ Report to the Members of British Sky Broadcasting the Report on Directors’ Remuneration and consider the implications for our report if we Group plc become aware of any apparent misstatements or material inconsistencies with the We have audited the financial statements of British Sky Broadcasting Group plc for the financial statements. year ended 30 June 2003 which comprise the Profit and Loss Account, the Balance Sheets, the Cash Flow Statement, the Statement of Total Recognised Gains and Losses, Basis of audit opinion and the related notes 1 to 31. These financial statements have been prepared under the We conducted our audit in accordance with United Kingdom auditing standards issued accounting policies set out therein. We have also audited the information in the part of by the Auditing Practices Board. An audit includes examination, on a test basis, of the Report on Directors’ Remuneration that is described as having been audited. evidence relevant to the amounts and disclosures in the financial statements and the part of the Report on Directors’ Remuneration described as having been audited. It also This Report is made solely to the Company’s members, as a body, in accordance with includes an assessment of the significant estimates and judgements made by the section 235 of the Companies Act 1985. Our audit work has been undertaken so that Directors in the preparation of the financial statements and of whether the accounting we might state to the Company’s members those matters we are required to state to policies are appropriate to the circumstances of the Company and the Group, them in an Auditors’ Report and for no other purpose. To the fullest extent permitted by consistently applied and adequately disclosed. law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions We planned and performed our audit so as to obtain all the information and explanations we have formed. which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the Report on Respective responsibilities of Directors and Auditors Directors’ Remuneration described as having been audited are free from material As described in the statement of Directors’ Responsibilities, the Company’s Directors are misstatement, whether caused by fraud or other irregularity or error. In forming our responsible for the preparation of the financial statements in accordance with applicable opinion, we also evaluated the overall adequacy of the presentation of information in the United Kingdom law and accounting standards. They are also responsible for the financial statements and the part of the Report on Directors’ Remuneration described as preparation of the other information contained in the annual report including the Report having been audited. on Directors’ Remuneration. Our responsibility is to audit the financial statements and the part of the Report on Directors’ Remuneration described as having been audited in Opinion accordance with relevant United Kingdom legal and regulatory requirements and In our opinion: auditing standards. – the financial statements give a true and fair view of the state of affairs of the Company and the Group at 30 June 2003 and of the profit of the Group for the year then ended; We report to you our opinion as to whether the financial statements give a true and fair and view and whether the financial statements and the part of the Report on Directors’ – the financial statements and part of the Report on Directors’ Remuneration described Remuneration described as having been audited have been properly prepared in as having been audited have been properly prepared in accordance with the accordance with the Companies Act 1985. We also report to you if, in our opinion, the Companies Act 1985. Directors’ report is not consistent with the financial statements, if the Company has not kept proper accounting records, if we have not received all the information and Deloitte & Touche LLP explanations we require for our audit, or if information specified by law regarding Chartered Accountants and Registered Auditors Directors’ remuneration and transactions with the Company and other members of the London Group is not disclosed. 11 August 2003 We review whether the corporate governance statement reflects the Company’s compliance with the seven provisions of the Combined Code specified for our review by Notes the Listing Rules of the Financial Services Authority, and we report if it does not. We are (i) The maintenance and integrity of the British Sky Broadcasting Group plc website is the not required to consider whether the Board’s statements on internal control cover all responsibility of the Directors; the work carried out by the auditors does not involve consideration of risks and controls, or form an opinion on the effectiveness of the Group’s corporate these matters and, accordingly, the auditors accept no responsibility for any changes that may have governance procedures or its risk and control procedures. occurred to the financial statements since they were initially presented on the website. (ii) Legislation in the United Kingdom governing the preparation and dissemination of financial We read the Directors’ Report and the other information contained in the annual report statements may differ from legislation in other jurisdictions. for the above year as described in the contents section including the unaudited part of

British Sky Broadcasting Group plc Annual Report and Accounts 2003 31 Consolidated Profit and Loss Account for the year ended 30 June 2003

Before Before goodwill and Goodwill and goodwill and Goodwill and exceptional exceptional 2003 exceptional exceptional 2002 items items Total items items Total NOTES £m £m £m £m £m £m

Turnover: Group turnover and share of joint ventures’ turnover 3,262.5 – 3,262.5 2,915.3 – 2,915.3 Less: share of joint ventures’ turnover (76.5) – (76.5) (139.2) – (139.2) Group turnover 2 3,186.0 – 3,186.0 2,776.1 – 2,776.1 Operating expenses, net 3 (2,815.3) (116.7) (2,932.0) (2,584.6) (136.5) (2,721.1) EBITDA 1 468.6 4.8 473.4 272.7 (18.2) 254.5 Depreciation (97.9) – (97.9) (81.1) – (81.1) Amortisation – (121.5) (121.5) (0.1) (118.3) (118.4) Operating profit (loss) 370.7 (116.7) 254.0 191.5 (136.5) 55.0

Share of operating results of joint ventures 5 3.4 – 3.4 (76.7) – (76.7) Joint ventures’ goodwill amortisation, net* 14 –––– (1,069.9) (1,069.9) Profit on sale of fixed asset investments 4 –––– 2.3 2.3 Amounts written off fixed asset investments, net 4 – (15.1) (15.1) – (60.0) (60.0) Release of provision for loss on disposal of subsidiary 4 ––––10.010.0 Profit (loss) on ordinary activities before interest and taxation 374.1 (131.8) 242.3 114.8 (1,254.1) (1,139.3)

Interest receivable and similar income 6 3.7 – 3.7 11.1 – 11.1 Interest payable and similar charges 6 (118.2) – (118.2) (148.0) – (148.0) Profit (loss) on ordinary activities before taxation 7 259.6 (131.8) 127.8 (22.1) (1,254.1) (1,276.2)

Tax on profit (loss) on ordinary activities 9 (58.7) 121.2 62.5 (28.6) (77.8) (106.4) Profit (loss) on ordinary activities after taxation 200.9 (10.6) 190.3 (50.7) (1,331.9) (1,382.6)

Equity dividends – paid and proposed 10 – – Retained profit (loss) for the financial year 24 190.3 (1,382.6)

Basic earnings (loss) per share 11 10.5p (0.6p) 9.9p (2.7p) (70.6p) (73.3p) Diluted earnings (loss) per share 11 10.3p (0.5p) 9.8p (2.7p) (70.6p) (73.3p)

Details of movements on reserves are shown in note 24. The accompanying notes are an integral part of this consolidated profit and loss account. All results relate to continuing operations. *Included within last year’s joint ventures’ goodwill amortisation of £1,069.9 million is £971.4 million in respect of an impairment of KirchPayTV GmbH & Co KGaA (“KirchPayTV”) goodwill (see notes 4 and 14)

Consolidated Statement of Total Recognised Gains and Losses for the year ended 30 June 2003

2003 2002 NOTES £m £m

Profit (loss) for the financial year* 24 190.3 (1,382.6) Translation differences on foreign currency net investment 24 – 1.4 Total recognised gains and losses relating to the year 190.3 (1,381.2)

*Included within the profit (loss) for the year is a £1.5 million profit (2002: £80.9 million loss) in respect of the Group’s share of the results of joint ventures. The accompanying notes are an integral part of this consolidated statement of total recognised gains and losses.

32 Annual Report and Accounts 2003 British Sky Broadcasting Group plc Consolidated Balance Sheet at 30 June 2003

2003 2002 NOTES £m £m

Fixed assets Intangible assets 12 535.9 657.4 Tangible assets 13 346.2 343.0 Investments: Investments in joint ventures: Share of gross assets 86.8 88.7 : Share of gross liabilities (59.0) (68.5) : Transfer to creditors 2.6 1.6 Total investments in joint ventures 14 30.4 21.8 Other fixed asset investments 15 78.5 107.1 Total investments 108.9 128.9 991.0 1,129.3

Current assets Stocks 16 370.4 414.2 Debtors: Amounts falling due within one year – deferred tax assets 18 30.8 13.9 – other 363.3 387.0 17 394.1 400.9

Debtors: Amounts falling due after more than one year – deferred tax assets 18 159.0 24.9 – other 63.9 182.1 17 222.9 207.0

Cash at bank and in hand 46.4 50.3 1,033.8 1,072.4

Creditors: Amounts falling due within one year – short-term borrowings 19 (0.2) (1.5) – other creditors 19 (955.0) (903.9) (955.2) (905.4)

Net current assets 78.6 167.0

Total assets less current liabilities 1,069.6 1,296.3

Creditors: Amounts falling due after more than one year – long-term borrowings 20 (1,151.6) (1,576.9) – other creditors 20 (20.5) (16.0) (1,172.1) (1,592.9)

Provisions for liabilities and charges 22 (3.2) (4.1) (105.7) (300.7)

Capital and reserves – equity Called-up share capital 23 968.9 946.7 Share premium 24 2,535.5 2,409.8 Shares to be issued 24 2.7 255.8 Merger reserve 24 299.0 266.7 Profit and loss account 24 (3,911.8) (4,179.7) 24 (105.7) (300.7)

The accompanying notes are an integral part of this consolidated balance sheet.

Signed on behalf of the Board Tony Ball Chief Executive Officer Martin Stewart Chief Financial Officer 11 August 2003

British Sky Broadcasting Group plc Annual Report and Accounts 2003 33 Company Balance Sheet at 30 June 2003

2003 2002 NOTES £m £m

Fixed assets Tangible assets 13 1.7 1.9 Investments 15 4,905.1 5,033.4 4,906.8 5,035.3

Current assets Debtors: Amounts falling due within one year – deferred tax assets 18 14.8 – – other 529.2 956.0 17 544.0 956.0

Debtors: Amounts falling due after more than one year – deferred tax assets 18 107.8 – – other 4.2 60.3 17 112.0 60.3

Cash at bank and in hand – 0.1 656.0 1,016.4

Creditors: Amounts falling due within one year 19 (452.2) (466.5)

Net current assets 203.8 549.9

Total assets less current liabilities 5,110.6 5,585.2

Creditors: Amounts falling due after more than one year 20 (1,880.0) (2,305.0) 3,230.6 3,280.2

Capital and reserves – equity Called-up share capital 23 968.9 946.7 Share premium 24 2,535.5 2,409.8 Shares to be issued 24 2.7 255.8 Capital reserve 24 843.9 843.9 Profit and loss account 24 (1,120.4) (1,176.0) 24 3,230.6 3,280.2

The accompanying notes are an integral part of this balance sheet.

Signed on behalf of the Board Tony Ball Chief Executive Officer Martin Stewart Chief Financial Officer 11 August 2003

34 Annual Report and Accounts 2003 British Sky Broadcasting Group plc Consolidated Cash Flow Statement for the year ended 30 June 2003

2003 2002 NOTES £m £m

Net cash inflow from operating activities 28a 663.6 249.7

Dividends received from joint ventures 4.0 –

Returns on investments and servicing of finance Interest received and similar income 3.2 8.8 Interest paid and similar charges on external financing (127.3) (141.0) Interest element of finance lease payments (0.5) (0.6) Net cash outflow from returns on investments and servicing of finance (124.6) (132.8)

Taxation UK corporation tax paid (17.6) – Consortium relief (paid) received (0.3) 22.5 Net cash (outflow) inflow from taxation (17.9) 22.5

Capital expenditure and financial investment Payments to acquire tangible fixed assets (98.4) (100.8) Receipts from sales of tangible fixed assets 0.6 – Receipts from sales of fixed asset investments 0.8 0.4 Receipts from sales of intangible fixed assets – 0.6 Purchase of own shares for Employee Share Ownership Plan (“ESOP”) – (26.9) Net cash outflow from capital expenditure and financial investment (97.0) (126.7)

Acquisitions and disposals Funding to joint ventures (14.6) (11.6) Repayments of funding from joint ventures 4.5 4.8 Net cash outflow from acquisitions and disposals (10.1) (6.8)

Net cash inflow before management of liquid resources and financing 418.0 5.9

Management of liquid resources Decrease in short-term deposits 28c 0.5 69.5

Financing Proceeds from issue of Ordinary Shares 4.8 14.3 Payments made on the issue of Ordinary Shares (0.1) (1.8) Capital element of finance lease payments 28b (1.6) (1.7) Net decrease in total debt 28b (425.0) (190.0) Net cash outflow from financing (421.9) (179.2)

Decrease in cash 28c (3.4) (103.8)

Decrease in net debt 28c 422.7 18.4

The accompanying notes are an integral part of this consolidated cash flow statement.

British Sky Broadcasting Group plc Annual Report and Accounts 2003 35 Notes to Financial Statements

01 Accounting policies g) Tangible fixed assets Tangible fixed assets are stated at cost, net of accumulated depreciation and any The principal accounting policies are summarised below. All of these have been applied provision for impairment. Land and assets in the course of construction are not consistently throughout the year and the preceding year. depreciated. Depreciation is provided to write off the cost, less estimated residual value, of each a) Basis of accounting asset on a straight-line basis over its estimated useful life. Principal annual rates used The financial statements have been prepared under the historical cost convention, for this purpose are: modified to include the revaluation of certain investments, and in accordance with applicable financial reporting and accounting standards. Freehold buildings 4% Leasehold improvements Lower of lease period or life of the asset b) Basis of consolidation Equipment, fixtures and fittings: The Group financial statements consolidate the financial statements of the Company – Fixtures and fittings 10% – 20% and all of its subsidiary undertakings. All companies are consolidated using acquisition – Computer equipment 20% – 331/3% accounting and all inter-company balances and transactions have been eliminated on – Technical equipment 10% – 20% consolidation. – Motor vehicles 25% The Group maintains a 52 or 53 week fiscal year ending on the Sunday nearest to 30 June in each year. In fiscal year 2003 this date was 29 June 2003, this being a h) Impairment of fixed assets and goodwill 52 week year (2002: 30 June 2002, 52 week year). Intangible fixed assets, goodwill and tangible fixed assets are reviewed for impairment The Company has taken advantage of the exemption in section 230 of the Companies if events or circumstances indicate that the carrying value may not be recoverable. Act 1985 not to present its own profit and loss account. The Company’s result for the Goodwill and intangible fixed assets are also reviewed for impairment at the end of the financial year determined in accordance with the Act is disclosed in note 24. first full financial year after acquisition. Should an impairment review be required, this is performed in accordance with FRS 11 – Impairment of fixed assets and goodwill. c) Acquisitions On the acquisition of a business, fair values are attributed to the Group’s share of i) Stocks separable net assets acquired. Adjustments are also made to bring the accounting Television programme rights policies into line with those of the Group. Where statutory merger relief is applicable, the Programme rights are stated at cost (including, where applicable, estimated escalation difference between the fair value of the shares issued as purchase consideration and payments) less accumulated amortisation. Provisions are made for any programme the nominal value of the shares issued as purchase consideration is treated as a merger rights which are surplus to Group requirements or which will not be shown for any reserve in the consolidated accounts. The results and cash flows relating to an acquired other reason. business are included in the consolidated profit and loss account and the consolidated Contractual obligations for programme rights not yet available for transmission are not cash flow statement from the date of acquisition. included in the cost of programme rights, but are disclosed as contractual On disposal or closure of a previously acquired business, any goodwill previously written commitments (see note 25). Payments made upon receipt of commissioned and off to reserves will be included in calculating the profit or loss on disposal. acquired programming, but in advance of the legal right to broadcast the programmes, are treated as prepayments. d) Goodwill and other intangible assets Acquired and commissioned programme rights are recorded in stock at cost when the Where the cost of acquisition exceeds the fair values attributable to the net assets programmes are available for transmission. acquired, the difference is treated as purchased goodwill and capitalised on the Group balance sheet in the year of acquisition. Purchased goodwill arising on acquisitions Amortisation is provided to write off the cost of acquired and commissioned programme from 1 July 1998 is capitalised. Prior to 1 July 1998, goodwill arising on acquisitions was rights as follows: eliminated against reserves. As permitted by FRS 10, this goodwill has not been restated Sports – 100% on first showing, or where contracts provide for sports rights for multiple on the balance sheet. seasons or competitions, the amortisation of each contract is based on anticipated Other intangible assets, all of which have been acquired, which are controlled through revenue. custody or legal rights and could be sold separately from the rest of the business, are Current affairs – 100% on first showing. capitalised where fair value can be reliably measured. General entertainment – straight-line basis on each transmission at the following rates: – One showing planned – 100% Where capitalised goodwill and intangible assets are regarded as having a limited useful – Two showings planned – 60%; 40% economic life, the cost is amortised on a straight-line basis over that life of up to 20 – Three showings planned – 50%; 30%; 20% years. Impairment reviews are carried out to ensure that goodwill and intangible assets – Four showings planned – 40%; 30%; 20%; 10% are not carried at above their recoverable amounts. Any amortisation or impairment Movies – Acquired movies are amortised on a straight-line basis over the period of write-downs are charged to the profit and loss account. transmission rights. Where acquired movie rights provide for a second availability window, 10% of the cost is allocated to that window. Own movie productions are e) Interests in joint ventures amortised in line with anticipated revenue over a maximum of five years. Joint ventures are entities in which the Group holds a long-term interest and shares control under a contractual arrangement. These investments are dealt with by the gross Set-top boxes and related equipment equity method of accounting. Provision is made within creditors where the Group’s Set-top boxes and related equipment include digital set-top boxes, Low Noise share of a joint venture’s loss exceeds the Group’s funding to date. Blockers (“LNBs”) and mini-dishes. These stocks are valued at the lower of cost and Net Realisable Value (“NRV”) (which reflects the value to the business of the set-top f) Fixed asset investments box and the related equipment in the hands of the customer). Any subsidy is expensed In the Company’s financial statements, investments in subsidiary undertakings are on enablement, which is the process of activating the viewing card once inserted in the stated at cost, with the exception of the investment in Sky Television Limited (“Sky”) set-top box upon installation, so as to enable a viewer to view encrypted broadcast which is stated at valuation. Provision is made for any impairment. services, and effectively represents the completion of the installation process for new In the Company’s balance sheet, where statutory merger relief is applicable, the cost subscribers. is measured by reference to the nominal value only of the shares issued. Any premium is not recognised. Raw materials, consumables and goods held for resale Raw materials, consumables and goods held for resale are valued at the lower of cost The Company’s shares held by the ESOP are included in the consolidated balance and NRV. sheet as fixed asset investments until such time as the interest in the shares is transferred unconditionally to the employees. Provision is made for any permanent j) Transponder rentals diminution in the value of shares held by the ESOP. Payments made in advance to secure satellite capacity have been recorded as prepaid A charge is made in the profit and loss account in relation to the shares held by the transponder rentals. These payments are amortised on a straight-line basis to the profit ESOP for awards under the Long-Term Incentive Plan (“LTIP”), the Key Contributor Plan and loss account from commencement of broadcasting to the end of the rental period, (“KCP”) and the Equity Bonus Plan (“EBP”) based on an assessment of the probability normally 10 years. of the performance criteria under the LTIP, KCP and EBP being met. The charge is k) Taxation allocated on a straight-line basis over the vesting periods of the LTIP, KCP and EBP. Corporation tax payable is provided at current rates on all taxable profits. The Group’s other fixed asset investments are stated at cost, less any provision for permanent diminution in value.

36 Annual Report and Accounts 2003 British Sky Broadcasting Group plc Notes to Financial Statements continued

01 Accounting policies (continued) p) Pension costs The Group provides pensions to eligible employees through the BSkyB Pension Plan l) Deferred taxation which is a defined contribution scheme. The amount charged to the profit and loss Deferred tax is recognised in respect of timing differences that have originated but not account in the year represents the cost of contributions payable by the Group to the reversed at the balance sheet date, where transactions or events that result in an scheme in that year. The assets of the BSkyB Pension Plan are held independently of obligation to pay more tax in the future or a right to pay less tax in the future have the Group. occurred at the balance sheet date. q) Leases A net deferred tax asset is regarded as recoverable and therefore recognised only Assets held under finance leases are treated as tangible fixed assets. Depreciation is when, on the basis of all available evidence, it can be regarded as more likely than not provided over the shorter of the lease term and the asset’s useful economic life, and the that there will be suitable taxable profits against which carried forward tax losses deemed capital element of future rentals is included within creditors. Deemed interest can be offset and from which the future reversal of underlying timing differences can is charged as interest payable over the period of the lease. be deducted. The rental costs arising from operating leases are charged to the profit and loss account Deferred tax is measured at the average tax rates that are expected to apply in the in the year in which they are incurred. periods in which the timing differences are expected to reverse, based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. r) EBITDA Deferred tax is measured on a non-discounted basis. EBITDA (earnings before interest, taxation, depreciation and amortisation) is calculated as operating profit before depreciation and amortisation or impairment of goodwill and m) Foreign currency intangible fixed assets. Trading activities denominated in foreign currencies are recorded in sterling at actual exchange rates as of the date of the transaction or at the contracted rate if the transaction is covered by a forward foreign exchange contract or other hedging instrument. Monetary assets, liabilities and commitments denominated in foreign currencies at the year end are reported at the rates of exchange prevailing at the year end or, if hedged, at the appropriate hedged rate. The results of overseas subsidiaries and joint ventures are translated at the average rates of exchange during the period and the balance sheet is translated at the rates ruling at the balance sheet date. Exchange differences arising on translation of the opening net assets and results of the overseas subsidiaries and joint ventures and on foreign currency borrowings, to the extent that they hedge the Group’s investment in these operations, are dealt with through reserves.

n) Derivatives and other financial instruments The Group uses a limited number of derivative financial instruments to hedge its exposures to fluctuations in interest and foreign exchange rates. Instruments accounted for as hedges are structured so as to reduce the market risk associated with the underlying transaction being hedged and are designated as a hedge at the inception of the contract. Receipts and payments on interest rate instruments are recognised on an accruals basis, over the life of the instrument. Gains and losses on instruments used for hedging are not recognised until the hedged position is recognised. Cash flows associated with derivative financial instruments are classified in the cash flow statement in a manner consistent with those of the underlying transactions being hedged. If an instrument ceases to be accounted for as a hedge, for example, by the underlying hedged position being eliminated, the instrument is marked to market and any resulting gain or loss is recognised in the profit and loss account. The Group does not hold or issue derivative financial instruments for speculative purposes.

o) Turnover Turnover, which excludes value added tax and sales between Group companies, represents the value of products and services sold. The Group’s main sources of turnover are recognised as follows: – Revenues from the provision of direct-to-home (“DTH”) subscription services are recognised as the services are provided. Pay-per-view revenue is recognised when the event, movie or football match is viewed. – Cable revenue is recognised as the services are provided to the cable wholesalers and is based on the number of subscribers taking the Sky channels as reported to the Group by the cable companies and the applicable rate card. – Advertising sales revenues are recognised when the advertising is broadcast. – Interactive turnover includes income from betting and gaming, on-line advertising, internet, e-commerce, interconnect, text services and set-top box subsidy recovery revenues from conditional access and access control customers on the Sky digital platform. Betting and gaming revenues represent: a) amounts receivable in respect of bets placed on events which occur in the year; and b) net customer losses in the year in respect of the on-line casino operations. All other Interactive revenues are recognised when the goods or services are delivered. – Other revenue principally includes income from installations (net of any discount), service call revenue, warranty revenue, marketing contributions from third party channels, conditional access fees and access control fees. Other revenues are recognised, net of any discount given, when the relevant service has been provided.

British Sky Broadcasting Group plc Annual Report and Accounts 2003 37 Notes to Financial Statements continued

02 Turnover

2003 2002 £m £m

DTH subscribers 2,341.2 1,929.2 Cable and digital terrestrial television (“DTT”) subscribers 202.2 279.4 Advertising 283.6 250.7 Interactive 218.3 186.0 Other 140.7 130.8 3,186.0 2,776.1

All Group turnover is derived from the Group’s sole class of business, being television broadcasting together with certain ancillary functions, and arises principally within the United Kingdom from activities conducted from the United Kingdom, with the exception of £0.4 million of turnover (2002: £23.0 million) which relates to activities conducted from the Channel Islands. In order to provide shareholders with additional information, the Group’s turnover has been analysed as shown above. All turnover arises from services provided to the United Kingdom, with the exception of £92.9 million (2002: £62.4 million) which arises from services provided to Ireland and £9.0 million (2002: £7.7 million) which arises from services provided to the Channel Islands. The Group’s profit before tax and its net liabilities relate to activities conducted in the United Kingdom, with the exception of £0.8 million loss (2002: £0.3 million loss) and £0.9 million of net assets (2002: £0.3 million net assets) which relate to activities conducted in the Channel Islands. The Group’s loss before tax and its net liabilities in the prior year also included a £1,143.5 million loss and nil assets which related to activities conducted in Germany.

03 Operating expenses, net

Before Before goodwill and Goodwill and goodwill and Goodwill and exceptional exceptional 2003 exceptional exceptional 2002 items items Total items items Total £m £m £m £m £m £m

Programming (i) 1,603.9 – 1,603.9 1,439.3 – 1,439.3 Transmission and related functions (i) 142.8 – 142.8 146.6 (4.1) 142.5 Marketing 400.5 – 400.5 416.6 – 416.6 Subscriber management 324.4 – 324.4 291.1 – 291.1 Administration 236.1 116.7 352.8 203.2 140.6 343.8 Betting 107.6 – 107.6 87.8 – 87.8 2,815.3 116.7 2,932.0 2,584.6 136.5 2,721.1

(i) The amounts shown are net of £12.0 million (2002: £15.3 million) receivable from the disposal of programming rights not acquired for use by the Group, and £25.5 million (2002: £23.7 million) in respect of the provision to third party broadcasters of spare transponder capacity.

04 Exceptional items

Charge Charge (credit) Taxation (credit) Taxation before charge 2003 before charge 2002 taxation (credit) Total taxation (credit) Total £m £m £m £m £m £m

(Release of provision) provision against ITV Digital programming debtors (i) (iv) (4.8) 1.4 (3.4) 22.3 (6.7) 15.6 Release of analogue termination provision (v) – – – (4.1) 1.2 (2.9) Exceptional operating items (4.8) 1.4 (3.4) 18.2 (5.5) 12.7

Joint ventures’ goodwill amortisation, net (vi) – – – 971.4 – 971.4 Profit on sale of fixed asset investment (vii) – – – (2.3) – (2.3) Amounts written off fixed asset investments, net (see note 15) (ii) (viii) 15.1 – 15.1 60.0 – 60.0 Release of provision for loss on disposal of subsidiary (ix) – – – (10.0) – (10.0) (Recognition) write-down of deferred tax asset (iii) (x) – (122.6) (122.6) – 83.3 83.3 Total exceptional items 10.3 (121.2) (110.9) 1,037.3 77.8 1,115.1

38 Annual Report and Accounts 2003 British Sky Broadcasting Group plc Notes to Financial Statements continued

04 Exceptional items (continued)

2003

Exceptional operating items (i) ITV Digital The Group provided in full against all unprovided balances owed by ITV Digital, following the announcement made on 30 April 2002 (see note (iv) below). During the year, the Group received £4.8m from ITV Digital’s administrators and released £4.8 million of its exceptional operating provision accordingly.

Other exceptional items (ii) Amounts written off fixed asset investments, net At 31 December 2002, the Group made a further provision against its minority investments in football clubs, leading to a non-cash exceptional charge of £21.0 million. Subsequently, the Group reduced its provision against its investment in Chelsea Village plc at 30 June 2003 by £3.2 million, following the agreement to sell its minority investment in July 2003. At 31 December 2002, the Group reduced its deferred revenue balance relating to minority investments in new media companies by £5.1 million, and reduced both its investment and its provision against the investment in these companies accordingly. At 31 December 2002, the Group made a provision against its investment in Open TV shares, leading to a non-cash exceptional charge of £2.9 million, bringing the carrying value of the Group’s investment in Open TV to £0.3 million. During February and March 2003, the Group disposed of its entire investment in Open TV shares, leading to a loss on disposal of £0.1 million.

(iii) Recognition of deferred tax asset Following a review of the forecast utilisation of tax losses within the Group, and as a consequence of a planned reorganisation of certain assets within the Group, there is now sufficient evidence to support the recognition of a deferred tax asset arising on losses incurred in the Company. Accordingly, a deferred tax credit of £122.6 million has been recognised as an exceptional item.

2002

Exceptional operating items (iv) ITV Digital At 27 March 2002, the date on which the ITV Digital DTT platform was put into administration, the Group had balances owed to it and unprovided for, in respect of programming licensed to ITV Digital, of £22.3 million. On 30 April 2002, the joint administrators of ITV Digital announced the closure of pay television services on the platform and their intention to close the administration. Accordingly, the Group made an exceptional operating provision against the whole of this balance (see note (i) above).

(v) Release of analogue termination provision On 27 September 2001, the Group terminated its analogue operation. From the original exceptional operating provision of £41.0 million, taken at 30 June 2000, £4.1 million of provision had not been utilised at 30 June 2002, and was therefore released to the profit and loss account as an exceptional credit.

Other exceptional items (vi) Joint ventures’ goodwill amortisation, net The exceptional item of £971.4 million of joint ventures’ goodwill amortisation, net, relates to the impairment charge taken against the carrying value of the Group’s interest in KirchPayTV of £984.9 million at 31 December 2001, net of an amount of £13.5 million released from the provision matching the Group’s share of losses for the period from 1 January 2002 to 8 February 2002, at which date the Group ceased to gross equity account for KirchPayTV’s results (see notes 5 and 14).

(vii) Profit on sale of fixed asset investment On 2 July 2001, the Group disposed of its unlisted investment in Static 2358 Limited, realising a profit on disposal of £2.3 million (see note 15).

(viii) Amounts written off fixed asset investments At 31 December 2001, the Group made a provision against its minority investments in football clubs, leading to a non-cash exceptional charge of £60.0 million.

(ix) Release of provision for loss on disposal of subsidiary On 16 October 2001, the Group and Ladbrokes, the betting and gaming division of Hilton Group plc, announced that they had agreed not to pursue the proposed joint venture to offer a fixed odds betting service on Sky Sports channels and other media. As a result, the provision for loss on disposal of subsidiary, taken at 30 June 2001, was written back, resulting in a non-cash exceptional profit of £10.0 million. The Group continues to operate and develop interactive TV betting services through its wholly-owned bookmaker, Sky Bet (formerly known as Surrey Sports).

(x) Write-down of deferred tax asset Following the impairment charge made in respect of the Group’s investment in KirchPayTV at 31 December 2001 (see note 14) there was insufficient evidence to support the recognition of a deferred tax asset arising on losses incurred by certain UK companies. Accordingly, the deferred tax asset of £95.6 million was written off in full at 31 December 2001, although by 30 June 2002, £12.3 million of this amount had been written back due to the utilisation of tax losses.

British Sky Broadcasting Group plc Annual Report and Accounts 2003 39 Notes to Financial Statements continued

05 Share of operating results of joint ventures

2003 2002 £m £m

KirchPayTV operating loss – (70.0) Programming joint ventures operating profit (loss), net 3.4 (6.7) 3.4 (76.7)

This relates to the Group’s equity share of the operating results of the Group’s joint ventures.

KirchPayTV By 8 February 2002, the Group considered that its relationship with KirchPayTV had irrevocably changed and that the Group had not exercised significant influence since that date. Therefore, the Group believed that, from 8 February 2002, it was no longer appropriate to account for its interest in KirchPayTV as a joint venture, and ceased accounting for KirchPayTV’s losses using the gross equity method from that date. As the Group has no intention of providing any future funding to KirchPayTV and the Group, on a consolidated basis, has no financial commitments, outstanding financial liabilities or contingent liabilities in respect of KirchPayTV, an amount of £13.5 million was released from the impairment provision made at 31 December 2001, in order to match the Group’s share of KirchPayTV’s losses for the period from 1 January 2002 to 8 February 2002.

06 Interest

a) Interest receivable and similar income

2003 2002 £m £m

Group Interest receivable on short-term deposits 2.6 8.2 Interest receivable on funding to joint ventures 0.1 0.3 Other interest receivable and similar income 0.5 0.6 3.2 9.1

Joint ventures Share of joint ventures’ interest receivable 0.5 2.0

Total interest receivable and similar income 3.7 11.1

b) Interest payable and similar charges

2003 2002 £m £m

Group On bank loans, overdrafts and other loans repayable within five years, not by instalments: – £200 million revolving credit facility (“RCF”) (previously £300 million RCF)* 2.5 10.8 – £750 million RCF** 27.0 46.3 – £600 million RCF** 3.7 – US$650 million of 8.200% Guaranteed Notes, repayable in 2009 31.1 31.6 £100 million of 7.750% Guaranteed Notes, repayable in 2009 7.8 7.8 US$600 million of 6.875% Guaranteed Notes, repayable in 2009 30.1 30.1 US$300 million of 7.300% Guaranteed Notes, repayable in 2006 13.8 15.1 Finance lease interest 1.0 1.0 Other interest payable and similar charges 0.9 0.4 117.9 143.1

Joint ventures Share of joint ventures’ interest payable 0.3 4.9

Total interest payable and similar charges 118.2 148.0

*In March 2003, the Group voluntarily cancelled £100 million of its £300 million RCF. The maturity date of the resultant £200 million RCF is still June 2004. **In addition, in March 2003 the Group entered into a new £600 million RCF. This facility was used to cancel the £750 million RCF, which was entered into in July 1999, and will be used for general corporate purposes. The new £600 million RCF has a maturity date of March 2008.

40 Annual Report and Accounts 2003 British Sky Broadcasting Group plc Notes to Financial Statements continued

07 Profit (loss) on ordinary activities before taxation

2003 2002 £m £m

The profit (loss) on ordinary activities before taxation is stated after charging (crediting): – depreciation (see note 13) – owned assets 96.2 79.5 – assets held under finance leases 1.7 1.6 – amortisation and impairment of intangible fixed assets (see note 12) 121.5 118.4 – joint ventures’ goodwill amortisation, net (see note 14) – 1,069.9 – amounts written off fixed asset investments, net (see note 15) 15.1 60.0 – profit on disposals of fixed assets and fixed asset investments (0.2) (2.3) – rentals on operating leases and similar arrangements: – land and buildings 9.0 8.2 – plant and machinery 80.0 76.4 – staff costs (see note 8) 299.1 276.9

Amounts payable to the auditors are analysed below:

2003 2002 £m £m

Statutory audit services 0.8 0.7 Audit related fees 0.6 0.8 Audit and audit related services 1.4 1.5

Tax advisory services 0.6 0.4

Customer relationship management centre development 5.1 4.8 Website development – 0.5 Other services 0.7 1.0 Non-audit related services 5.8 6.3

During the year, the auditors received £5.1 million (2002: £4.8 million) in respect of on-going contact centre development services. Due to the complex and long-term nature of the infrastructure development work, the Group is satisfied that Deloitte & Touche should continue to provide these services.

In addition to the amounts above, the Group understands that, during the previous year, its auditors indirectly received £4.0 million from the Group, through the performance of sub-contracted services for one of the Group’s customer relationship management centre consultants. The Group understands that no such payments were made during 2003. The Company did not pay any amounts to the auditors in respect of audit services during either year, as the cost was borne by another Group undertaking in both years.

08 Staff costs

a) Employee costs Employee costs for permanent and temporary employees, and Executive Directors during the year amounted to:

2003 2002 £m £m Wages and salaries 234.3 227.1 Costs of LTIP, KCP, EBP and other share-related bonus schemes 27.4 17.2 Social security costs 25.9 22.0 Other pension costs 11.5 10.6 299.1 276.9

The Group operates a defined contribution pension scheme through the BSkyB Pension Plan. The pension charge for the year represents the cost of contributions payable by the Group to the Plan during the year and amounted to £11.5 million (2002: £10.6 million). The Group’s contributions owing to the Plan at 30 June 2003 were £0.8 million (30 June 2002: £0.7 million). The average monthly number of full time equivalent people (including temporary employees) employed by the Group during the year was as follows:

2003 2002 Number Number Programming 1,106 1,131 Transmission and related functions 1,383 1,274 Marketing 199 193 Subscriber management 5,381 5,432 Administration 954 965 Betting 109 88 9,132 9,083

b) Directors’ emoluments A detailed breakdown of remuneration by Director, the terms of their employment contracts and their rights under the Group’s incentive schemes are given within the Report on Directors’ Remuneration on pages 26 to 31, of which sections 13 to 18 are audited.

British Sky Broadcasting Group plc Annual Report and Accounts 2003 41 Notes to Financial Statements continued

09 Taxation

a) Analysis of charge (credit) in year

Tax charge (credit) on Tax charge on profit before Exceptional profit before exceptional tax charge 2003 exceptional Exceptional 2002 items (credit) Total items tax charge (ii) Total £m £m £m £m £m £m

Current tax 85.0 1.4 86.4 –––

Deferred tax: Origination and reversal of timing differences (26.6) (122.6) (149.2) 27.3 77.8 105.1 Increase in estimate of recoverable deferred tax asset in respect of prior years (1.8) – (1.8) --- Total deferred tax (i) (28.4) (122.6) (151.0) 27.3 77.8 105.1

Share of joint ventures’ tax charge 2.1 – 2.1 1.3 - 1.3 58.7 (121.2) (62.5) 28.6 77.8 106.4

(i) During the year the Group recorded a deferred tax credit of £163.3 million relating to deferred tax assets not previously recognised. The Directors consider that there is now sufficient evidence to support the recognition of these deferred tax assets on the basis that it is more likely than not that there will be suitable taxable profits against which these assets can be utilised. £122.6 million of the deferred tax credit has been treated as an exceptional item. (ii) An exceptional deferred tax charge of £95.6 million was made at 31 December 2001, against which £12.3 million was written back at 30 June 2002 as a result of the utilisation of tax losses.This was offset by a £5.5 million tax credit on a provision against ITV Digital’s programming debtor and the release of the analogue termination provision, treated as exceptional operating items.

b) Factors affecting the current tax charge for the year The current tax charge for the year is higher than the standard rate of corporation tax in the UK (30%). The differences are explained below:

2003 2002 £m £m

Profit (loss) on ordinary activities before tax 127.8 (1,276.2) Less: Share of joint ventures’ (profit) loss before tax (3.6) 79.6 Group profit (loss) on ordinary activities before tax 124.2 (1,196.6) Group profit (loss) on ordinary activities multiplied by standard rate of corporation tax in the UK of 30% (2002: 30%) 37.3 (359.0)

Effects of: Write-down of KirchPayTV not deductible for tax purposes – 291.4 Other expenses not deductible for tax purposes (primarily goodwill amortisation) 42.5 77.8 Other timing differences 11.8 19.2 Utilisation of tax losses (7.3) (30.6) Consortium relief 2.1 1.2 Current tax charge for the year 86.4 –

c) Factors that may affect future tax charges At 30 June 2003, a deferred tax asset of £12.5 million (2002: £149.6 million) arising from UK losses in the Group, has not been recognised. These losses can be offset only against taxable profits generated in the entities concerned. Although the Directors ultimately expect sufficient profits to arise, there is currently insufficient evidence to support recognition of a deferred tax asset relating to these losses.The losses are available to be carried forward indefinitely under current law.

Deferred tax assets of £63.7 million (2002: £63.7 million) have not been recognised in respect of trading losses in the Group’s German holding companies of KirchPayTV, and £450.0 million (2002: £450.0 million) have not been recognised in respect of potential capital losses related to the Group’s holding of KirchPayTV. A deferred tax asset of £4.6 million (2002: £18.0 million) arising principally on other timing differences has not been recognised on the basis that these timing differences are not more likely than not to reverse.

10 Dividends The Directors do not propose an interim or final dividend for the financial year (2002: nil). At 30 June 2003, the Company has a deficit on the profit and loss account reserve of £1,120.4 million (see note 24). The Company is currently not in a position to pay a dividend. The ESOP has waived its rights to dividends.

42 Annual Report and Accounts 2003 British Sky Broadcasting Group plc Notes to Financial Statements continued

11 Earnings (loss) per share

Basic earnings (loss) per share represents the profit (loss) on ordinary activities after taxation attributable to the equity shareholders, divided by the weighted average number of Ordinary Shares in issue during the year, less the weighted average number of shares held in the Group’s ESOP trust during the year. Diluted earnings (loss) per share represents the profit (loss) on ordinary activities after taxation attributable to the equity shareholders divided by the weighted average number of Ordinary Shares in issue during the year, less the weighted average number of shares held in the Group’s ESOP trust during the year plus the weighted average number of dilutive shares resulting from share options and other potential shares outstanding during the year (see below). The weighted average number of shares in the year was:

2003 2002 Millions of shares Millions of shares

Ordinary Shares 1,921.2 1,891.2 ESOP trust shares (6.2) (3.8) Basic shares 1,915.0 1,887.4

Dilutive Ordinary Shares from share options and other potential Ordinary Shares outstanding 27.2 –* Diluted shares 1,942.2 1,887.4

*As the Group made a loss on ordinary activities after taxation in 2002, no share options or other potential Ordinary Shares outstanding were considered to be dilutive.

2003 2002 Before After Before After goodwill and goodwill and goodwill and goodwill and exceptional Exceptional exceptional exceptional Exceptional exceptional items Goodwill items items items Goodwill items items

Profit (loss) on ordinary activities after taxation £200.9m (£121.5m) £110.9m £190.3m (£50.7m) (£216.8m) (£1,115.1m) (£1,382.6m) Basic earnings (loss) per share 10.5p (6.4p) 5.8p 9.9p (2.7p) (11.5p) (59.1p) (73.3p) Diluted earnings (loss) per share 10.3p (6.2p) 5.7p 9.8p (2.7p) (11.5p) (59.1p) (73.3p)

Earnings (loss) per share is shown calculated by reference to losses both before and after goodwill and exceptional items and related tax, since the Directors consider that this gives a useful additional indication of underlying performance.

12 Intangible fixed assets

The movement in the year was as follows:

Other intangible Goodwill (i), (ii) fixed assets Total £m £m £m

Group Cost Beginning and end of year 819.7 0.4 820.1

Amortisation Beginning of year 162.5 0.2 162.7 Charge 116.3 – 116.3 Impairment losses (ii) 5.2 – 5.2 End of year 284.0 0.2 284.2

Net book value Beginning of year 657.2 0.2 657.4 End of year 535.7 0.2 535.9

Goodwill (i) Goodwill of £272.4 million, £542.1 million and £5.2 million, arising on the acquisitions of SIG, BiB and WAPTV respectively, is being amortised over periods of seven years on a straight-line basis. In accordance with FRS 11, impairment reviews were performed on the carrying values of BiB and SIG goodwill balances at the end of the first full financial year after acquisition, at 30 June 2002. These reviews showed that no impairment was identified in either case. Consistent with the Group strategy, the business plans on which these reviews were based reflected significant projected increases in betting and other interactive revenues over the subsequent five years. Since the time of these reviews the performance of these operations has been broadly in line with the forecasts in the business plans used for these reviews, and no indications of impairment have arisen. (ii) At 31 December 2002, the Group made a provision of £5.2 million, included within amortisation, against goodwill which arose on the acquisition of Opta Index Limited (“Opta”) (a subsidiary of SIG, which provides statistics on the sports industry), reducing the carrying value of the goodwill to nil. The provision was made as a result of the Group’s announcement in December 2002 that it would close Opta. The Group is currently in negotiations to sell or license some or all of Opta’s assets to a third party.

Other intangible fixed assets Other intangible fixed assets comprise internet domain names, which are being amortised over a period of seven years on a straight-line basis.

British Sky Broadcasting Group plc Annual Report and Accounts 2003 43 Notes to Financial Statements continued

13 Tangible fixed assets

The movement in the year was as follows:

Freehold Short Equipment, Assets in land and leasehold fixtures and course of buildings (i) improvements fittings (ii) construction Total £m £m £m £m £m

Group Cost Beginning of year 37.9 83.3 554.4 29.9 705.5 Additions 0.4 3.2 73.0 24.8 101.4 Disposals ––(10.9) – (10.9) Transfers ––25.8 (25.8) – End of year 38.3 86.5 642.3 28.9 796.0

Depreciation Beginning of year 6.0 43.3 313.2 – 362.5 Charge 2.3 4.0 91.6 – 97.9 Disposals ––(10.6) – (10.6) End of year 8.3 47.3 394.2 – 449.8

Net book value Beginning of year 31.9 40.0 241.2 29.9 343.0 End of year 30.0 39.2 248.1 28.9 346.2

Group (i) The amounts shown include assets held under finance leases with a net book value of £6.3 million (2002: £6.7 million). Depreciation charged during the year on such assets was £0.4 million (2002: £0.3 million). Depreciation was not charged on £9.4 million of land (2002: £9.4 million). (ii) The amounts shown include assets held under finance leases with a net book value of £2.3 million (2002: £3.6 million). Depreciation charged during the year on these assets was £1.3 million (2002: £1.3 million).

Company The Company’s only tangible fixed assets relate to leasehold improvements at the Group’s head office, the cost and net book value of which amounted to £3.2 million (2002: £3.2 million) and £1.7 million (2002: £1.9 million) respectively. The depreciation charged during the year on the Company’s tangible fixed assets was £0.2 million (2002: £0.2 million).

14 Investments in joint ventures

The movement in the year was as follows:

2003 2002 £m £m

Group Cost and funding, excluding goodwill Beginning of year 224.7 217.9 Loans advanced to joint ventures 14.6 11.6 Loans repaid by joint ventures (4.5) (4.8) End of year 234.8 224.7

Transfer to creditors (i) 2.6 1.6

Movement in share of underlying net assets Beginning of year (204.5) (195.7) Share of operating results of joint ventures (see note 5) 3.4 (76.7) Share of joint ventures’ interest receivable (see note 6) 0.5 2.0 Share of joint ventures’ interest payable (see note 6) (0.3) (4.9) Share of joint ventures’ tax charges (see note 9) (2.1) (1.3) Dividends received from joint venture (4.0) – Exchange adjustments – 1.4 Transferred to other fixed asset investments – 70.7 End of year (207.0) (204.5)

44 Annual Report and Accounts 2003 British Sky Broadcasting Group plc Notes to Financial Statements continued

14 Investments in joint ventures (continued)

Group Group 2003 2002 £m £m

Goodwill Beginning of year – 1,140.6 Amortisation – (98.5) Amounts provided, net (see note 4) – (971.4) Transferred to other fixed asset investments – (70.7) End of year – –

Net book value (ii) Beginning of year 21.8 1,163.7 End of year 30.4 21.8

(i) The investment in joint ventures excludes cumulative losses of £2.6 million (2002: £1.6 million), which represent losses in excess of the funding provided. The related obligation is recorded within creditors. (ii) The net book value above includes listed investments with a net book value of £5.0 million at 30 June 2003 (2002: £6.2 million). The aggregate market value of these investments at 30 June 2003 was £4.8 million (2002: £3.5 million).

2002

KirchPayTV At 31 December 2001, the carrying value of the Group’s investment in its KirchPayTV joint venture was written down to nil, following an exceptional charge to joint ventures’ goodwill amortisation of £984.9 million. Joint ventures’ goodwill amortisation also included goodwill amortisation of £98.5 million for the six months ended 31 December 2001. The Group’s investment in KirchPayTV was treated as a joint venture until 8 February 2002, after which date the Group considered that it was no longer able to exercise significant influence over KirchPayTV. Accordingly on 8 February 2002, the investment was transferred within Fixed Asset Investments to Other investments at a net book value of nil. On 1 August 2002, formal insolvency proceedings were opened for KirchPayTV. The Group does not expect to receive any funds from these proceedings. On 13 May 2002, the Group exercised a put option to transfer its interest in KirchPayTV to Taurus Holding GmbH & Co KG, a company which became the subject of formal insolvency proceedings on 13 September 2002. The Group does not expect to receive a significant amount, if any, from the exercise of its put option.

The following information is given in respect of the Group’s share of all joint ventures:

Group Group (i) 2003 2002 £m £m

Turnover 76.5 139.2 Fixed assets 4.1 3.6 Current assets 82.7 85.1 Liabilities due within one year (47.6) (66.0) Liabilities due after more than one year (11.4) (2.5)

(i) This includes the Group’s 22% share of KirchPayTV’s turnover up until it ceased to be treated as a joint venture on 8 February 2002.

Group’s share of KirchPayTV (as adjusted) 1 April to 8 November 2001 £m

Turnover 66.5 Operating loss (70.0) Net interest payable (3.6) Loss before taxation (73.6) Taxation – Loss after taxation (73.6)

As KirchPayTV ceased to be treated as a joint venture from 8 February 2002, no joint venture balance sheet disclosure has been provided for either 2003 or 2002. In the absence of KirchPayTV results for the period from 1 July 2001 to 8 February 2002, the results for a similar period, the period from 1 April 2001 to 8 November 2001, have been used.

British Sky Broadcasting Group plc Annual Report and Accounts 2003 45 Notes to Financial Statements continued

15 Other fixed asset investments

The following are included in the net book value of other fixed asset investments:

Group Group Company Company 2003 2002 2003 2002 £m £m £m £m

Investments in subsidiary undertakings (a) – – 4,861.7 4,972.2 Investment in own shares (b) 34.6 42.2 – – Other investments (c) 43.9 64.9 43.4 61.2 78.5 107.1 4,905.1 5,033.4

(a) Investment in subsidiary undertakings The movement in the year was as follows:

Company 2003 2002 Cost or valuation £m £m

Beginning of year 7,490.9 7,490.9 Additions 1.0 – Merger relief (i) (111.5) – End of year 7,380.4 7,490.9

Provision Beginning of year 2,518.7 1,372.4 Provision against investment in KirchPayTV (ii) – 1,146.3 End of year 2,518.7 2,518.7

Net book value Beginning of year 4,972.2 6,118.5 End of year 4,861.7 4,972.2

Since 30 June 1994, the Company’s cost of investment in Sky has been carried at Directors’ valuation of £994.6 million (an increase of £930 million) being Sky’s net asset value at that date. The net book value is nil (2002: nil).

2003 (i) The Company has taken advantage of merger relief available under Section 131 of the Companies Act 1985 and has reduced its investment in BiB following the issue of shares on 11 November 2002 to BT in respect of the deferred consideration for the acquisition of 19.9% of BiB in June 2001.

2002 (ii) The provision against the investment in KirchPayTV aligned the value of the indirect investment in KirchPayTV in the Company’s balance sheet with the carrying value of KirchPayTV in the Group’s balance sheet of nil.

(b) Investment in own shares The movement in the year was as follows:

Number of Group Ordinary Shares £m

Beginning of year 6,599,637 42.2 Share options exercised during the year (1,142,625) (7.6) End of year 5,457,012 34.6

At 30 June 2003, the Group’s ESOP held 5.5 million Ordinary Shares in the Company (2002: 6.6 million) at an average value of £6.34 per share (2002: £6.39 per share). These shares were designated to hedge a portion of the Group’s obligations outstanding under share schemes: the LTIP (4.0 million shares), the EBP (0.4 million shares) and the KCP (1.1 million shares). The 1.1 million Ordinary Shares utilised during the year relate to the exercise of LTIP and KCP awards. The cost to the Group of the LTIP, EBP and KCP awards hedged by the ESOP is accrued over the relevant vesting periods of these schemes. An amount of £28.3 million is included within accruals (2002: £19.3 million). The market value of shares held by the ESOP at 30 June 2003 was £36.6 million (2002: £41.5 million), and the nominal value was £2.7 million (2002: £3.3 million).

46 Annual Report and Accounts 2003 British Sky Broadcasting Group plc Notes to Financial Statements continued

15 Other fixed asset investments (continued)

(c) Other investments

Group Group Company Company 2003 2002 2003 2002 £m £m £m £m

Cost Beginning of year 1,119.9 161.2 121.2 121.2 Additions (vi) – 3.2 – – Transfer from joint ventures (x) – 971.4 – – Transfer to joint ventures (ii) (1.0) – – – Disposals (iii), (iv), (v), (vi), (viii), (ix) (14.0) (15.9) – – End of year 1,104.9 1,119.9 121.2 121.2

Provision Beginning of year 1,055.0 38.1 60.0 – Disposals (iii), (iv), (v), (vi), (viii), (ix) (13.7) (14.5) – – Transfer from joint ventures (x) – 971.4 – – Transfer to joint ventures (ii) (1.0) – – – Provided during the year, net (i), (iv), (vii) 20.7 60.0 17.8 60.0 End of year 1,061.0 1,055.0 77.8 60.0

Net book value Beginning of year 64.9 123.1 61.2 121.2 End of year 43.9 64.9 43.4 61.2

2003 (i) At 31 December 2002, the Group made a further provision against its minority equity investments in football clubs, leading to a non-cash exceptional charge of £21.0 million, reduced by £3.2 million to reflect the post year end disposal of its investment in Chelsea Village plc (see note 30).

(ii) In April 2003, the Group’s total investment in Mykindaplace increased to 26%. The investment was subsequently transferred to Investments in Joint Ventures from Other Investments at its net book value of nil.

(iii) At 31 December 2002, the Group reduced its deferred revenue balance relating to minority investments in new media companies by £5.1 million, and reduced both its investment and its provision against the investment in these companies accordingly.

(iv) At 31 December 2002, the Group made a provision against its investment in Open TV shares, leading to a non-cash exceptional charge of £2.9 million. This reduced the carrying value of the Group’s investment in Open TV to £0.3 million. Between 12 February 2003 and 24 March 2003, the Group disposed of its entire investment in Open TV shares for total consideration of £0.2 million, resulting in a loss of £0.1 million.

(v) In March 2003, the Group disposed of its investment in Streetsonline for total consideration of £0.6 million, which had been held at a cost of £6.0 million less provision of £6.0 million. These amounts were written back upon disposal of the Group’s investment in Streetsonline.

2002 (vi) On 2 July 2001, the Group disposed of its unlisted investment in Static 2358 Limited for total consideration of £3.7 million, comprising a mixture of cash and shares in Open TV. The Group made a profit on disposal of £2.3 million. The investment in Open TV shares was included as an addition to other investments in the period.

(vii) At 31 December 2001, the Group made a provision against its minority equity investments in football clubs, leading to a non-cash exceptional charge of £60.0 million.

(viii) On 26 February 2002 the Group sold its listed investment in Gameplay plc for total consideration of £0.03 million, realising a profit on disposal of £0.03 million. The Group’s investment in Gameplay plc was held at cost of £12.3 million less provision of £12.3 million. These amounts were written back upon disposal of the Group’s investment in Gameplay plc.

(ix) On 7 June 2002 the Group disposed of its listed investment in Toyzone plc following its liquidation. The Group’s investment in Toyzone plc was held at cost of £2.2 million less provision of £2.2 million. These amounts were written back upon disposal of the Group’s investment in Toyzone plc.

(x) The Group’s investment in KirchPayTV was treated as a joint venture until 8 February 2002, after which date the Group considered that it was no longer able to exercise significant influence over KirchPayTV. The investment is now treated as a fixed asset investment and was transferred from Investments in joint ventures to Other investments on 8 February 2002 at a net book value of nil.

Further analysis of listed investments is shown below:

Group Group Company Company 2003 2002 2003 2002 £m £m £m £m

Carrying value of listed investments included above* 37.4 49.4 37.4 46.2 Aggregate market value of listed investments at end of year 44.6 40.1 44.6 39.4

*Including investments listed on OFEX. No tax liability would arise on the sale of these listed investments at the market value shown above as no gains would arise.

British Sky Broadcasting Group plc Annual Report and Accounts 2003 47 Notes to Financial Statements continued

16 Stocks

2003 2002 £m £m

Group Television programme rights 337.2 367.3 Set-top boxes and related equipment 29.0 42.2 Raw materials and consumables 1.6 4.4 Goods held for resale 2.6 0.3 370.4 414.2

At least 79% (2002: 77%) of the existing television programme rights at 30 June 2003 will be amortised within one year.

17 Debtors

Group Group Company Company 2003 2002 2003 2002 £m £m £m £m

Debtors: Amounts falling due within one year Trade debtors 170.9 177.5 – – Amounts owed by subsidiary undertakings – – 505.7 952.2 Amounts owed by joint ventures (see note 27) 16.0 15.2 – – Amounts owed by other related parties (see note 27) 0.4 1.0 – – Other debtors 6.4 8.5 – – Prepaid programme rights 53.8 80.5 – – Prepaid transponder rentals 16.9 15.5 – – Advance Corporation Tax 39.7 18.2 21.3 – Deferred tax assets (see note 18) 30.8 13.9 14.8 – Prepaid media agency rights 2.6 3.7 – – Other prepayments and accrued income 56.6 66.9 2.2 3.8 394.1 400.9 544.0 956.0

Debtors: Amounts falling due after more than one year Prepaid programme rights 2.7 38.6 – – Prepaid transponder rentals 48.7 55.6 – – Advance Corporation Tax – 67.1 – 55.9 Deferred tax assets (see note 18) 159.0 24.9 107.8 – Prepaid media agency rights 5.5 12.8 – – Other prepayments and accrued income 7.0 8.0 4.2 4.4 222.9 207.0 112.0 60.3

18 Deferred tax assets

Group Group Company Company 2003 2002 2003 2002 £m £m £m £m

Included within debtors due within one year: – tax losses carried forward 20.7 11.7 14.8 – – accelerated capital allowances 6.7 2.2 – – – short-term timing differences 3.4 – – – 30.8 13.9 14.8 –

Included within debtors due after more than one year: – tax losses carried forward 125.0 – 107.8 – – accelerated capital allowances 21.5 24.9 – – – short-term timing differences 12.5 – – – 159.0 24.9 107.8 – 189.8 38.8 122.6 –

Deferred tax asset Beginning of year 38.8 143.9 – 63.2 Credit (charge) in the profit and loss account during the year 151.0 (105.1) 122.6 (63.2) End of year 189.8 38.8 122.6 –

48 Annual Report and Accounts 2003 British Sky Broadcasting Group plc Notes to Financial Statements continued

18 Deferred tax assets (continued)

Group Included within the total deferred tax asset recognised at 30 June 2003 is £145.7 million (2002: £11.7 million), relating to carried forward tax losses. Following a review of the forecast utilisation of tax losses within the Group, and as a consequence of a planned reorganisation of certain assets within the Group, the Directors consider that there is now sufficient evidence to support the recognition of these deferred tax assets on the basis that it is more likely than not that there will be suitable taxable profits against which these assets can be utilised.

The amount of unrecognised deferred tax present within the Group is disclosed in note 9.

Company The total deferred tax asset recognised at 30 June 2003 of £122.6 million (2002: nil) can be offset only against future taxable profits generated in the Company. The Directors consider that there is now sufficient evidence to support the recognition of this deferred tax asset on the basis that it is more likely than not that there will be suitable taxable profits against which these assets can be utilised. The Company has no unrecognised deferred tax assets (2002: £83.3 million).

19 Creditors: Amounts falling due within one year

Group Group Company Company 2003 2002 2003 2002 £m £m £m £m

Short-term borrowings £200 million RCF (see note 20a) – – – – Obligations under finance leases 0.2 1.5 – – 0.2 1.5 – –

Other Trade creditors 323.4 311.1 – – Amounts due to subsidiary undertakings – – 416.4 418.0 Amounts due to joint ventures (see note 27) 0.8 – – – Amounts due to related parties (see note 27) 24.6 20.4 – – UK corporation tax 27.6 4.7 – – VAT 61.7 86.2 – – Social security and PAYE 0.4 7.0 – – Other creditors 43.5 42.0 – – Accruals and deferred income 473.0 432.5 35.8 48.5 955.0 903.9 452.2 466.5 955.2 905.4 452.2 466.5

Included within trade creditors are £226.2 million (2002: £243.6 million) of US dollar-denominated programme creditors. At least 90% (2002: 90%) of these were covered by forward rate currency contracts (see note 25).

20 Creditors: Amounts falling due after more than one year

Group Group Company Company 2003 2002 2003 2002 £m £m £m £m

Long-term borrowings £750 million RCF (a) – 500.0 – 500.0 £600 million RCF (a) 75.0 – 75.0 – US$650 million of 8.200% Guaranteed Notes, repayable in 2009 (b) 412.5 412.5 412.5 412.5 £100 million of 7.750% Guaranteed Notes, repayable in 2009 (b) 100.0 100.0 100.0 100.0 US$600 million of 6.875% Guaranteed Notes, repayable in 2009 (b) 367.2 367.2 367.2 367.2 US$300 million of 7.300% Guaranteed Notes, repayable in 2006 (b) 189.2 189.2 189.2 189.2 Obligations under finance leases (c) 7.5 7.8 – – Amounts due to subsidiary undertakings (d) – – 736.1 736.1 Other borrowings 0.2 0.2 – – 1,151.6 1,576.9 1,880.0 2,305.0

Other Accruals and deferred income 20.5 16.0 – – 1,172.1 1,592.9 1,880.0 2,305.0

British Sky Broadcasting Group plc Annual Report and Accounts 2003 49 Notes to Financial Statements continued

20 Creditors: Amounts falling due after more than one year

(a) RCFs In March 2003 the Group entered into a new £600 million RCF. This facility was used to cancel the £750 million RCF, which was entered into in July 1999, and will be used for general corporate purposes. The new £600 million RCF has a maturity date of March 2008 and interest accrues at a margin of between 0.600% and 1.125% above the London Inter-Bank Offer Rate (“LIBOR”), dependent on the Group’s Net debt:EBITDA leverage ratio (as defined in the loan agreement). Until June 2004, the margin is fixed at 1.125% and shall not fall below 0.700% per annum above LIBOR prior to March 2006. Also in March 2003, the Group voluntarily cancelled £100 million of the £300 million March 2001 RCF. The maturity date of the resultant £200 million RCF is still June 2004 and should it be drawn upon, accrues interest at a rate (presently 1.250%) above LIBOR dependent on the Group’s credit rating. This facility reduction, together with the replacement of the Group’s £750 million RCF as described above, reduced the Group’s aggregate available facilities from £1,050 million to £800 million. In June 2004, when the £200 million RCF matures, the aggregate facilities available to the Group will be reduced to £600 million. These reductions in committed bank facilities are consistent with the Group’s anticipated liquidity requirements.

(b) Guaranteed notes At 30 June 2003 the Group also had in issue the following publicly-traded guaranteed notes: US$650 million of 8.200% Guaranteed Notes, repayable in July 2009. At the time of issuing these notes, the US dollar proceeds were swapped into pounds sterling at an average fixed rate of 7.653% payable semi-annually. In December 2002 and March 2003, the Group amended the terms relating to £63.5 million of these swap arrangements, the effect of which was to fix the interest rate on £63.5 million at 5.990% until January 2004, after which time it will revert to a floating rate equal to six months LIBOR plus a margin of 3.390%. £100 million of 7.750% Guaranteed Notes, repayable in July 2009. The fixed coupon is payable annually. US$600 million of 6.875% Guaranteed Notes, repayable in February 2009. At the time of issuing these notes, the US dollar proceeds were swapped into pounds sterling at an average fixed rate of 8.200%, payable semi-annually. US$300 million of 7.300% Guaranteed Notes repayable in October 2006. At the time of issuing these notes, the Group entered into swap transactions to convert the dollar proceeds to pounds sterling, half of which carries a fixed rate of interest of 8.384% until maturity, payable semi-annually. The remainder was fixed at 7.940% until 15 April 2002, thereafter floating at 0.620% over six months LIBOR, again payable semi-annually. In respect of this remaining floating exposure, on 16 January 2002, the Group entered into a further interest rate hedging arrangement to fix the rate at 6.130% from 15 April 2002, payable semi-annually for the remainder of the life of the Notes. Both the bank facilities and the publicly-traded guaranteed notes have been guaranteed by British Sky Broadcasting Limited and Sky Subscribers Services Limited (see note 25).

Borrowings outstanding, which exclude finance leases, are repayable as follows:

Group Group Company Company 2003 2002 2003 2002 £m £m £m £m

Amounts repayable: – between one and two years – 500.0 – 500.0 – between two and five years 264.3 189.2 1,000.3 925.3 – after five years 879.8 879.9 879.7 879.7 1,144.1 1,569.1 1,880.0 2,305.0

(c) Finance leases Obligations under finance leases are repayable as follows:

Group Group Company Company 2003 2002 2003 2002 £m £m £m £m

Amounts repayable: – within one year 0.2 1.5 – – – between one and two years 0.3 0.4 – – – between two and five years 0.9 0.8 – – – after five years 6.3 6.6 – – 7.7 9.3 – –

At 30 June 2003, all obligations under finance leases represent amounts drawn down in connection with the Customer Relationship Management Centre in Dunfermline. Repayments of £0.7 million (2002: £0.8 million) were made against the Customer Relationship Management Centre lease and repayments of £1.5 million (2002: £2.4 million) were made against the IT asset leases, which were fully repaid in the current year. A proportion of these payments has been allocated to any capital amount outstanding. The Customer Relationship Management Centre lease bears interest at a rate of 8.5% and expires in September 2020.

(d) Amounts due to subsidiary undertakings Amounts due to subsidiary undertakings represent an interest free loan which is repayable in full on 30 June 2007.

50 Annual Report and Accounts 2003 British Sky Broadcasting Group plc Notes to Financial Statements continued

21 Derivatives and other financial instruments

On page 11, the Operating and Financial Review provides an explanation of the role that financial instruments have had in the management of the Group’s funding, liquidity and foreign exchange rate risks, during the year. As permitted by FRS 13, short-term debtors and creditors have been excluded from the FRS 13 disclosures, other than the currency risks disclosures.

Interest rate risks After taking into account interest rate swaps and forward foreign currency contracts entered into by the Group, the interest rate profile of the Group’s financial liabilities was:

2003 2002 Fixed Floating Total Fixed Floating Total

£m 1,076.6 75.2 1,151.8 1,378.2 200.2 1,578.4 Weighted average interest rate 7.7% 4.8% 7.5% 7.7% 5.4% 7.4% Weighted average period for which the rate is fixed (years) 5.2 n/a n/a 5.1 n/a n/a Weighted average term (years) 5.4 4.8 5.4 5.5 2.0 5.0

Further details of interest rates on long-term borrowings are given in note 20. In addition, cash at bank and in hand of £46.4 million (2002: £50.3 million) consists of sterling deposits, in bank accounts or on money markets, at overnight rates or on time deposits. At 30 June 2003, there were no time deposit balances (2002: £0.5 million, expiring within 14 days of year end, at an average interest rate of 3.75%).

Currency risks The table below shows the Group’s currency exposures after hedging that give rise to the net currency gains and losses recognised in the profit and loss account. Such exposures comprise the net monetary assets and liabilities of the Group that are not denominated in the functional currency of the operating unit involved and principally consist of cash deposits, trade debtors and trade creditors.

Net foreign currency monetary assets (£m) 2003 2002 USD Euros Total USD Euros Total

Functional currency of Group operating unit Sterling 13.9 29.8 43.7 1.5 7.4 8.9

At 30 June 2003 and 30 June 2002, the Group also held open various currency forward contracts that the Group had taken out to hedge expected future foreign currency commitments (see note 25(a)).

Liquidity risks The profile of the Group’s financial liabilities, other than short-term creditors, is shown in note 20. The expected profile of provisions is discussed in note 22. The Group’s undrawn committed bank facilities, subject to covenants, were as follows:

2003 2002 £m £m

Expiring within one year 200.0 – Expiring between one and two years – 550.0 Expiring between two and five years 525.0 – Total 725.0 550.0

Fair values Set out below is a comparison by category of the book values and the estimated fair values of the Group’s financial assets and financial liabilities, and associated derivative financial instruments at 30 June 2003 and 30 June 2002:

2003 2002 Book Fair Book Fair value value value value £m £m £m £m

Primary financial instruments held or issued to finance the Group’s operations Bank borrowings (75.2) (75.2) (500.2) (500.2) Quoted bond debt (1,068.9) (1,185.2) (1,068.9) (1,067.8) Finance leases (7.7) (7.7) (9.3) (9.3) Cash deposits 46.4 46.4 50.3 50.3

Derivative financial instruments held to manage the interest rate and currency profile Combined interest and exchange rate swaps – 7.0 – 60.2 Forward foreign currency contracts – (51.4) – (50.3)

The fair values of quoted bond debt are based on period-end mid-market quoted prices. The fair values of other borrowings are estimated by discounting the future cash flows to net present value. The fair values of derivative financial instruments are estimated by calculating the difference between the contracted rates and the appropriate market rates prevailing at the period ends. In addition to the financial instruments in the above fair value table, the Group had holdings in the equity share capital of other listed investments at 30 June 2003 and 30 June 2002. See notes 14 and 15 for disclosure of their book and fair values. The difference between book value and fair value reflects unrealised gains or losses inherent in the instrument, based on valuations at 30 June 2003 and 30 June 2002. The volatile nature of the markets means that values at any subsequent date could be significantly different from the values reported above.

British Sky Broadcasting Group plc Annual Report and Accounts 2003 51 Notes to Financial Statements continued

21 Derivatives and other financial instruments (continued)

Hedges The Group’s policy is to hedge the following exposures: – interest rate risk, using interest rate and cross currency swaps – transactional currency exposures, using forward foreign currency contracts – exposures on long-term foreign currency debt, using cross currency swaps Gains and losses on instruments used for hedging are not recognised until the hedged position is recognised. Unrecognised gains and losses on instruments used for hedging, and the movements therein, are as follows:

2003 2002 Total net Total net gains gains Gains Losses (losses) Gains Losses (losses) £m £m £m £m £m £m

Unrecognised gains and losses at the beginning of the year 73.8 (63.9) 9.9 113.7 (23.7) 90.0 Gains and losses arising in previous years that were recognised in the year (0.1) 45.5 45.4 (13.1) 4.0 (9.1) Gains and losses arising before the beginning of the year that were not recognised in the year 73.7 (18.4) 55.3 100.6 (19.7) 80.9 Gains and losses arising in the year that were not recognised in the year (34.9) (64.8) (99.7) (26.8) (44.2) (71.0) Unrecognised gains and losses on hedges at the end of the year 38.8 (83.2) (44.4) 73.8 (63.9) 9.9

Of which: Gains and losses expected to be recognised in the next year 0.1 (46.4) (46.3) 0.1 (37.7) (37.6) Gains and losses expected to be recognised after the next year 38.7 (36.8) 1.9 73.7 (26.2) 47.5

22 Provisions for liabilities and charges

Sky In-Home Analogue Service Limited Sky Interactive Provision for termination Transition reorganisation reorganisation closure of provision provision provision (a) provision (b) Sky Pictures Total £m £m £m £m £m £m

Group At 1 July 2001 8.2 18.6 0.4 15.5 0.3 43.0 Utilised in year (4.1) (18.6) (0.2) (7.1) (0.3) (30.3) Released in year (4.1) – – – – (4.1) Transferred to fixed assets – – – (4.5) – (4.5) At 30 June 2002 – – 0.2 3.9 – 4.1

Utilised in year – – (0.1) (0.8) – (0.9) At 30 June 2003 – – 0.1 3.1 – 3.2

(a) The remaining Sky In-Home Service Limited reorganisation provision principally comprises the costs of onerous lease contracts and is expected to be utilised by June 2005. (b) The remaining Sky Interactive reorganisation provision principally comprises the cost of onerous contracts associated with the reorganisation and consolidation of all interactive and on-line activities within the division ‘Sky Interactive’, and is expected to be utilised by June 2009.

23 Called-up share capital

2003 2002 £m £m

Authorised 3,000,000,000 Ordinary Shares of 50p 1,500.0 1,500.0 Allotted, called-up and fully paid – equity Ordinary Shares – 1,937,754,876 (2002: 1,893,428,580) of 50p 968.9 946.7

Allotted and fully paid during the year

Number of ordinary shares Beginning of year 1,893,428,580 Options exercised under the Executive Share Option Scheme at between £0.500 and £6.385 666,838 Options exercised under the Sharesave Scheme at between £2.050 and £6.110 423,822 Shares issued in respect of deferred consideration for the acquisition of BiB 43,235,636 End of year 1,937,754,876

Movements in share capital in the year ended 30 June 2003 are described in note 24.

52 Annual Report and Accounts 2003 British Sky Broadcasting Group plc Notes to Financial Statements continued

23 Called up share capital (continued)

Share option and contingent share award schemes Total options and contingent share awards in existence at 30 June 2003 were as follows:

Number of Scheme Ordinary Shares

Executive Share Option Scheme Options (a) 41,052,567 Sharesave Scheme Options (b) 3,749,134 LTIP Awards (c) 7,269,683 KCP Awards (d) 1,135,000 EBP Awards (e) 397,000 53,603,384

(a) Executive Share Option Scheme Options Options in existence at 30 June 2003 under the Executive Schemes are shown in the table below:

Number of Option price Exercisable Ordinary Shares £ from

Date of grant 8 December 1994 172,795 2.560 8 December 1997 15 May 1997 266,078 5.675 15 May 2000 10 June 1997 15,061 5.975 10 June 2000 18 August 1997 6,864 4.370 18 August 2000 18 August 1997 21,809 4.420 18 August 2000 14 November 1997 7,308 4.105 14 November 2000 14 November 1997 36,253 4.030 14 November 2000 4 February 1998 8,298 3.615 4 February 2001 1 December 1998 3,624,812 5.010 1 December 2001 7 May 1999 4,589 4.350 7 May 2002 12 August 1999 600,000 5.830 12 August 2002 18 October 1999 1,124 0.980 18 October 2002 29 October 1999 4,382,303 6.385 29 October 2002 1 November 1999 214,231 6.535 1 November 2002 22 November 1999 107,775 6.495 22 November 2002 5 April 2000 41,517 13.970 5 April 2003 12 May 2000 20,800 12.980 12 May 2003 22 May 2000 21,842 10.530 22 May 2003 23 May 2000 126,529 9.800 23 May 2003 12 June 2000 34,993 11.430 12 June 2003 30 June 2000 100,931 12.880 30 June 2003 26 July 2000 46,077 12.370 26 July 2003 30 August 2000 267,535 11.400 30 August 2003 23 November 2000 5,698,957 9.900 23 November 2001 1 December 2000 3,901,500 9.840 1 December 2003 4 January 2001 59,534 10.750 4 January 2002 26 February 2001 66,746 9.340 26 February 2002 6 March 2001 92,416 9.290 6 March 2002 14 March 2001 121,289 8.950 14 March 2002 21 May 2001 74,644 7.190 21 May 2002 4 June 2001 94,480 7.165 4 June 2002 26 July 2001 184,815 7.080 26 July 2002 6 November 2001 9,565,078 7.940 6 November 2002 13 November 2001 26,668 8.360 13 November 2002 4 January 2002 88,057 7.890 4 January 2003 14 February 2002 12,479 7.005 14 February 2003 26 February 2002 20,343 6.850 26 February 2003 14 May 2002 32,689 6.820 14 May 2003 5 June 2002 600,000 7.350 5 June 2005 28 June 2002 13,725 6.290 28 June 2003 5 August 2002 9,832,806 5.300 5 August 2004 20 September 2002 47,815 5.185 20 September 2004 30 September 2002 20,672 5.305 30 September 2004 2 January 2003 229,296 6.390 2 January 2005 20 February 2003 64,362 6.010 20 February 2005 18 March 2003 74,672 6.100 18 March 2005 41,052,567

Further details regarding the Approved and Unapproved Executive Share Options can be found in the Report on Directors’ Remuneration on pages 26 to 31.

British Sky Broadcasting Group plc Annual Report and Accounts 2003 53 Notes to Financial Statements continued

23 Called up share capital (continued)

(b) Sharesave Scheme Options Options in existence at 30 June 2003 under the Sharesave Scheme are shown in the table below:

Number of Option price Exercisable Ordinary Shares £ from

Date of grant 25 October 1995 6,841 3.020 1 February 2003 2 November 1996 17,752 4.620 1 January 2004 27 October 1997 30,066 3.720 1 January 2003 27 October 1997 26,932 3.720 1 January 2005 28 September 1998 164,341 3.780 1 December 2003 28 September 1998 89,830 3.780 1 December 2005 18 October 1999 96,553 4.620 1 January 2003 18 October 1999 172,190 4.620 1 January 2005 18 October 1999 41,899 4.620 1 January 2007 3 October 2000 254,788 9.710 1 January 2004 3 October 2000 79,489 9.710 1 January 2006 3 October 2000 27,677 9.710 1 January 2008 28 September 2001 520,428 6.110 1 January 2005 28 September 2001 133,085 6.110 1 January 2007 28 September 2001 39,898 6.110 1 January 2009 30 September 2002 1,424,523 4.750 1 January 2006 30 September 2002 506,511 4.750 1 January 2008 30 September 2002 116,331 4.750 1 January 2010 3,749,134 Further details regarding the Sharesave Scheme can be found in the Report on Directors’ Remuneration on pages 26 to 31.

(c) LTIP Awards Awards in existence at 30 June 2003 under the LTIP are shown in the table below:

Number of Option price Exercisable Ordinary Shares £ from

Date of grant 3 November 2000 936,375 10.040 3 November 2002 3 November 2000 1,532,250 10.040 30 June 2003 21 November 2001 1,489,686 8.300 30 June 2003 21 November 2001 1,489,689 8.300 30 June 2004 2 August 2002 779,600 5.550 31 July 2004 2 August 2002 779,601 5.550 31 July 2005 13 August 2002 39,361 5.600 31 July 2004 13 August 2002 39,361 5.600 31 July 2005 2 January 2003 91,880 6.390 31 July 2004 2 January 2003 91,880 6.390 31 July 2005 7,269,683 Further details regarding the LTIP can be found in the Report on Directors’ Remuneration on pages 26 to 31.

(d) KCP Awards Awards in existence at 30 June 2003 under the KCP are shown in the table below:

Number of Option price Exercisable Ordinary Shares £ from

Date of grant 21 November 2001 61,750 8.300 31 July 2002 21 November 2001 577,500 8.300 31 July 2003 4 March 2002 15,750 7.175 31 July 2003 9 August 2002 237,500 5.700 31 July 2003 9 August 2002 237,500 5.700 31 July 2004 14 August 2002 2,500 5.655 31 July 2003 14 August 2002 2,500 5.655 31 July 2004 1,135,000 Further details regarding the KCP can be found in the Report on Directors’ Remuneration on pages 26 to 31.

54 Annual Report and Accounts 2003 British Sky Broadcasting Group plc Notes to Financial Statements continued

23 Called up share capital (continued)

(e) EBP Awards Awards in existence at 30 June 2003 under the EBP are shown in the table below:

Number of Option price (i) Exercisable Ordinary Shares £ from

Date of grant 2 August 2002 178,500 n/a 31 July 2004 2 August 2002 178,500 n/a 31 July 2005 2 January 2003 20,000 n/a 31 July 2004 2 January 2003 20,000 n/a 31 July 2005 397,000 (i) Awards under the EBP take the form of a contingent right to acquire existing BSkyB shares at the vesting date. Further details regarding the EBP can be found in the Report on Directors’ Remuneration on pages 26 to 31.

24 Reconciliation of movement in shareholders’ funds

Movement in shareholders’ funds for both Group and Company include all movements in reserves.

Total equity Share Share Shares to Merger Profit and loss shareholders’ capital premium be issued reserve account funds (deficit) £m £m £m £m £m £m

(a) Group At 1 July 2001 944.4 2,377.6 256.9 340.8 (2,859.1) 1,060.6 Issue of share capital 2.3 34.0 (1.1) – (13.5) 21.7 Share issue costs – (1.8) – – – (1.8) Loss for the financial year – – – – (1,382.6) (1,382.6) Transfer from merger reserve – – – (74.1) 74.1 – Translation differences on foreign currency net investment – – – – 1.4 1.4 At 1 July 2002 946.7 2,409.8 255.8 266.7 (4,179.7) (300.7)

Issue of share capital 22.2 125.8 (253.1) 111.5 (1.6) 4.8 Share issue costs – (0.1) – – – (0.1) Profit for the financial year – – – – 190.3 190.3 Transfer from merger reserve – – – (79.2) 79.2 – At 30 June 2003 968.9 2,535.5 2.7 299.0 (3,911.8) (105.7) At 30 June 2003, the cumulative goodwill written off directly to reserves by the Group amounted to £523.8 million (2002: £523.8 million). During the year, £35.6 million (2002: £35.6 million) relating to the amortisation of BiB goodwill and £43.6 million (2002: £38.5 million) relating to the amortisation of SIG goodwill was transferred from the Group merger reserve to the Group profit and loss reserve. During the year the Company issued shares with a market value of £6.4 million (2002: £35.2 million) in respect of the exercise of options awarded under various share option schemes with £4.8 million (2002: £14.3 million) received from employees. On 11 November 2002, the Company issued 43.2 million shares with a fair value of £253.1 million to HSBC, Matsushita and BT ("the selling shareholders") in respect of deferred consideration for the acquisition of the remaining 67.5% of BiB in May and June 2001. The Group also agreed with the selling shareholders certain other terms relating to the agreement reached on 15 July 2000 for the acquisition by the Group of the interest of the selling shareholders in BiB. These included the waiver of the selling shareholders' rights under the earn out provisions. The earn out provisions provided that if the valuation of BiB was £3 billion or more in January or July 2003, further contingent consideration would have been payable to the selling shareholders. No liability had been recorded in the prior year in respect of this earn out. Additional Group merger reserve of £111.5 million was created in relation to 20.8 million shares issued to BT in respect of deferred consideration for the acquisition of 19.9% of BiB. In June 2002 the Company issued 169,375 new shares, which were used to satisfy part of the contingent consideration in respect of the acquisition of the remaining 5% minority interest in WAPTV Limited in May 2001. A further 338,755 new shares are expected to be issued in September 2003 to satisfy the remaining contingent consideration.

Share Share Shares to Capital Profit and loss Shareholders’ capital premium be issued reserve account funds £m £m £m £m £m £m

(b) Company At 1 July 2001 944.4 2,377.6 256.9 843.9 164.0 4,586.8 Issue of share capital 2.3 34.0 (1.1) – – 35.2 Share issue costs – (1.8) – – – (1.8) Loss for the financial year – – – – (1,340.0) (1,340.0) At 30 June 2002 946.7 2,409.8 255.8 843.9 (1,176.0) 3,280.2

Issue of share capital 22.2 125.8 (253.1) – – (105.1) Share issue costs – (0.1) – – – (0.1) Profit for the financial year – – – – 55.6 55.6 At 30 June 2003 968.9 2,535.5 2.7 843.9 (1,120.4) 3,230.6

British Sky Broadcasting Group plc Annual Report and Accounts 2003 55 Notes to Financial Statements continued

25 Guarantees, contingencies and other financial commitments

a) Future expenditure

Group Group 2003 2002 £m £m

Contracted for, but not provided for in the accounts – television programme rights (i) 1,617.8 2,165.6 – set-top boxes and related equipment 106.0 126.9 – third party payments (ii) 46.1 58.3 – capital expenditure 2.5 5.9 – other purchase obligations 7.5 – 1,779.9 2,356.7

(i) Of the commitments for television programme rights, £692 million (2002: £1,005 million) related to commitments payable in US dollars for periods of up to ten years (2002: seven years) and £136 million (2002: nil) related to commitments payable in Swiss francs for periods of up to three years. At 30 June 2003, the US dollar commitments have been translated at the year end rate of US$1.6497:£1 (2002: US$1.5347:£1), except for US$566 million (2002: US$585 million) covered by forward rate contracts where the average forward rate of US$1.4925:£1 (2002: US$1.3856:£1) has been used. The Swiss franc commitments have been translated at the year end rate of CHF2.2288:£1, except for CHF99 million covered by forward rate contracts where the average forward rate of CHF2.1068:£1 has been used. The US dollar commitment disclosed above is subject to price escalation clauses in accordance with the terms of certain of the movie programme rights contracts. The extent of the escalation, and hence of the commitments, is dependent both upon the number of subscribers to the relevant movie channel in certain cases and upon inflationary increases. If subscriber numbers were to remain at 30 June 2003 levels, the additional commitment in respect of subscriber escalation would be £213 million (US$351 million) (2002: £251 million (US$ 386 million)).

(ii) The third party payment commitments in respect of distribution agreements for the Sky Distributed channels disclosed above are subject to price escalation clauses in accordance with the terms of certain of the distribution agreements. The extent of the escalation, and the levels of the commitments, are dependent upon the number of DTH subscribers to the relevant Sky Distributed channels and in certain cases upon inflationary increases. If both the DTH subscriber levels to these channels and the rate payable for each Sky Distributed channel were to remain at 30 June 2003 levels, the additional commitment in respect of subscriber escalation would be £799 million (2002: £885 million), for periods of up to six years (2002: six years).

At 30 June 2003, the Group had outstanding forward rate contract commitments to purchase in aggregate US$903 million (2002: US$920 million) at an average rate of US$1.4925: £1 (2002: US$1.3856:£1). The Group also has outstanding forward rate contract commitments to purchase in aggregate CHF99 million (2002: nil) at average rates of CHF2.0834:£1 and CHF1.4844: Euro 1.

b) Contingent liabilities The Group has contingent liabilities by virtue of its investments in unlimited companies, or partnerships, which include Nickelodeon UK, The History Channel (UK), Paramount UK, QVC and National Geographic Channel UK. The Directors do not expect any material loss to arise from the above contingent liabilities.

c) Guarantees Two of the Group’s subsidiary undertakings, British Sky Broadcasting Limited and Sky Subscribers Services Limited, have given joint and several guarantees in relation to the Company’s £200 million and £600 million RCFs and the US$650 million, US$600 million, US$300 million and £100 million Guaranteed Notes (see note 20). The Group has agreed to provide additional funding to several of its investments in limited and unlimited companies and partnerships in accordance with funding agreements.

d) Contingent consideration On 29 May 2001, the Group acquired the 5% minority interest in WAPTV Limited for a total consideration of £5.0 million. The consideration comprised 169,375 new BSkyB Ordinary Shares issued on 29 May 2001, contingent consideration which was satisfied by the issue of a further 169,375 new BSkyB Ordinary Shares on 30 June 2002, and contingent consideration which will be satisfied by the issue of 338,755 new BSkyB Ordinary Shares on 30 September 2003. The contingent consideration is contingent upon the vendors remaining continuously in the employment of a member of the Group from completion until the date the deferred consideration is due. The remaining contingent consideration has been recognised and recorded within shares to be issued as it is considered probable that these criteria will be fulfilled.

e) Lease and similar commitments The minimum annual rentals under these arrangements are as follows:

Plant and Property machinery Total £m £m £m

Group 30 June 2003 Operating leases and similar arrangements which expire: – within one year 0.5 3.4 3.9 – between two and five years 2.4 26.2 28.6 – after five years 7.9 35.1 43.0 10.8 64.7 75.5 – –

30 June 2002 Operating leases and similar arrangements which expire: – within one year 0.8 0.5 1.3 – between two and five years 0.9 14.6 15.5 – after five years 9.2 43.1 52.3 10.9 58.2 69.1

Group The Group leases certain land and buildings on short-term and long-term operating leases. The rents payable under these leases are subject to renegotiation at the various intervals specified in the leases.

Company At 30 June 2003, the Company had minimum annual rentals for property under operating leases and similar arrangements which expire between two and five years of £0.4 million (2002: nil).

56 Annual Report and Accounts 2003 British Sky Broadcasting Group plc Notes to Financial Statements continued

26 Regulatory update

Office of Fair Trading (“OFT”) On 5 December 2000 the OFT announced that it was to conduct an inquiry into the affairs of British Sky Broadcasting Limited (“BSkyB Limited”), under the UK Competition Act 1998 (“Competition Act”), in particular the wholesale supply by BSkyB Limited of certain of its channels to third party distributors in the UK (i). BSkyB Limited maintained that it had not infringed the Competition Act and, on 17 December 2002, following submission by BSkyB Limited of written and oral representations, the OFT announced that BSkyB Limited had not been found in breach of competition law in respect of its investigation. Such findings by the OFT may be appealed by third parties who have a “sufficient interest” in accordance with the provisions of the Competition Act.

EC Investigation – FAPL The EC Commission has commenced investigations into a number of agreements, decisions or practices leading to the acquisition of broadcast rights to football events within the European Union, including the sale of exclusive broadcast rights to Premier League football by the Football Association Premier League Limited (“FAPL”). On 21 June 2002, BSkyB Limited and the FAPL notified BSkyB Limited’s current agreements for FAPL rights to the EC Commission seeking either a clearance or an exemption from Article 81 of the EC Treaty. The FAPL has also notified the rules of the FAPL to the EC Commission. On 20 December 2002, the EC Commission issued a Statement of Objections to the FAPL outlining certain concerns in respect of the FAPL’s joint selling of broadcast rights to Premier League football. On 30 July 2003, the Group received a request for information from the EC Commission concerning the current bidding process being undertaken by the FAPL. The Group is currently unable to assess whether this EC investigation will have a material effect on the Group.

EC Investigation – Movie Contracts The EC Commission is investigating the terms on which movies produced by major US movie studios are supplied to distributors, including pay TV operators, throughout the European Union. The Group has co-operated with this investigation. At this stage, the Group is unable to determine whether it will have a material effect on the Group.

27 Transactions with related parties and major shareholders

a) Transactions with major shareholders The Company and Group conduct business transactions on an arm’s length basis with companies who are part of The News Corporation Group, a major shareholder:

–Twentieth Century Fox supplied programming with a total value of £63.2 million in the year (2002: £55.9 million), the majority of which is supplied under arrangements extending to December 2004, with a variable annual value dependent on the number of films supplied. The Group also earned £0.5 million (2002: nil) from Twentieth Century Fox in respect of programming-related fees. – NDS Limited supplied smart cards and encryption services with a value of £49.7 million in the year (2002: £44.5 million) under a contract extending to September 2010. The Group also has a number of contracts with NDS for the supply of digital equipment, of which £3.7 million (2002: £5.1 million) was paid during the year. – Broadsystem Ventures Limited (“BVL”) supplied telephony services with a value of £3.0 million during the year (2002: £2.0 million). The Group also earned £4.2 million (2002: £1.0 million) from BVL in respect of telephony services. – News International plc and News America Publishing provided media-based advertising services worth £5.2 million in the year (2002: £4.9 million) and News International plc provided rental premises at a cost to the Group of £0.4 million in the year (2002: £0.4 million). The Group also earned £1.7 million (2002: £1.1 million) from News International plc for the provision of airtime. – Orbis Technology Limited and Visonik supplied interactive and internet-based services of £2.3 million in the year (2002: £0.9 million). – National Rugby League Limited and News Interactive sold sports rights to the Group during the year worth £4.0 million (2002: £3.4 million). – STAR Television Group (“STAR”), Fox News Channel and Phoenix Chinese News and Entertainment paid the Group £1.4 million during the year (2002: £1.3 million) for the provision of transponder capacity. The Group paid STAR £1.5 million (2002: £1.2 million) in respect of carriage fees for the supply of programming. – JSkySports Corporation, ESPN STAR Sports and Fancy A Flutter Limited paid the Group £0.9 million (2002: £0.5 million) of fees related to programming.

Balances payable to the above companies which form part of The News Corporation Group, analysed by activity:

2003 2002 £m £m

Programming 22.6 18.2 Encryption services 0.7 2.2 Telephony services 0.9 – Advertising 0.4 – 24.6 20.4

Balances receivable from members of The News Corporation Group, analysed by activity:

2003 2002 £m £m

Transponders 0.1 0.4 Other 0.3 0.6 0.4 1.0

Notes (i) Where an undertaking has intentionally or negligently infringed the Competition Act, it may be fined up to a maximum of 10% of its total UK turnover for each year it is found to be in breach, up to a maximum of three years. In addition, third parties, such as customers and competitors, may be entitled to recover damages where they have suffered loss as a result of conduct in breach of the Competition Act.

British Sky Broadcasting Group plc Annual Report and Accounts 2003 57 Notes to Financial Statements continued

27 Transactions with related parties and major shareholders (continued)

b) Transactions with joint ventures All transactions with joint ventures are conducted on an arm’s length basis.

2003 2002 £m £m

Revenue 19.4 23.0 Operating costs 63.8 53.9

Revenues are primarily generated from the provision of transponder capacity, marketing and support services, together with commissions receivable. Operating costs represent fees payable for channel carriage.

2003 2002 £m £m

Funding to joint ventures (see note 14) 234.8 224.7 Amounts owed by joint ventures (see note 17) 16.0 15.2 Amounts owed to joint ventures (see note 19) 0.8 –

c) Other transactions with related parties Elisabeth Murdoch is the daughter of Rupert Murdoch, and sister to James Murdoch, both Directors of the Company, and owns 60% of the ordinary share capital of Shine Entertainment Limited, in which the Group has a 3.5% equity shareholding. During the year, the Group incurred development and production costs for television of £2.0 million (2002: £1.3 million) from Shine Entertainment Limited. At 30 June 2003, there were no outstanding amounts due to or from Shine Entertainment Limited (2002: nil).

28 Notes to consolidated cash flow statement

a) Reconciliation of operating profit to operating cash flows

Before Before goodwill and Goodwill and goodwill and Goodwill and exceptional exceptional 2003 exceptional exceptional 2002 items items Total items items Total £m £m £m £m £m £m

Operating profit (loss) 370.7 (116.7) 254.0 191.5 (136.5) 55.0 Depreciation 97.9 – 97.9 81.1 – 81.1 Amortisation of goodwill and other intangible fixed assets – 121.5 121.5 0.1 118.3 118.4 Profit on sale of fixed assets (0.3) – (0.3) –– – Decrease in stock 43.8 – 43.8 9.9 – 9.9 Decrease in debtors 88.0 – 88.0 77.9 22.3 100.2 Increase (decrease) in creditors 59.6 – 59.6 (80.5) – (80.5) Provision utilised, net (0.9) – (0.9) (0.3) (34.1) (34.4) Net cash inflow (outflow) from operating activities 658.8 4.8 663.6 279.7 (30.0) 249.7

b) Analysis of changes in net debt

At 1 July 2002 Cash flow At 30 June 2003 £m £m £m

Overnight deposits 38.7 (6.0) 32.7 Other cash 11.1 2.6 13.7 49.8 (3.4) 46.4

Short-term deposits 0.5 (0.5) – Cash at bank and in hand 50.3 (3.9) 46.4

Debt due after more than one year (1,569.1) 425.0 (1,144.1) Finance leases (9.3) 1.6 (7.7) Total debt (1,578.4) 426.6 (1,151.8)

Total net debt (1,528.1) 422.7 (1,105.4)

58 Annual Report and Accounts 2003 British Sky Broadcasting Group plc Notes to Financial Statements continued

28 Notes to consolidated cash flow statement (continued)

c) Reconciliation of net cash flow to movement in net debt

2003 2002 NOTE £m £m

Decrease in cash (3.4) (103.8) Decrease in short-term deposits (0.5) (69.5) Cash outflow resulting from decrease in debt and lease financing 426.6 191.7 Decrease in net debt 422.7 18.4 Net debt at beginning of year (1,528.1) (1,546.5) Net debt at end of year 28b (1,105.4) (1,528.1)

d) Major non-cash transactions

2003

Issue of shares – deferred consideration for BiB On 11 November 2002, the Company issued 43.2 million shares with a fair value of £253.1 million to HSBC, Matsushita and BT in respect of deferred consideration for the acquisition of the remaining 67.5% of BiB in May and June 2001.

2002

Impairment of investment in KirchPayTV Effective 31 December 2001, the Group wrote down the carrying value of its investment in KirchPayTV to nil (see note 14). The write-down resulted in a net non-cash exceptional charge to the profit and loss account of £971.4 million.

29 Financing arrangements

At 30 June 2003, the Group’s balance sheet showed net liabilities of £105.7 million. The Directors consider that the operating cash flows of the Group, together with its own bank facilities, will be sufficient to cover the Group’s projected operating requirements and to settle or refinance the Group’s other liabilities as they fall due, for a minimum period of 12 months from the date of signing these financial statements. Accordingly the financial statements are prepared on a going concern basis.

30 Post balance sheet events

On 22 July 2003, the Group entered into a binding agreement for the sale of its 9.9% equity investment in Chelsea Village plc for consideration in cash of £5.9 million.

On 8 August 2003, it was announced that the Group had successfully bid for all four packages of exclusive live UK rights to FA Premier League football from the beginning of the 2004/05 season to the end of the 2006/07 season. The total cost of the new agreement for the four UK live packages is £1,024 million over three years.

British Sky Broadcasting Group plc Annual Report and Accounts 2003 59 Notes to Financial Statements continued

31 Principal Group investments

The investments of the Company and the Group which principally affect the consolidated results and net assets of the Group are as follows:

Country of incorporation/ Description and proportion Name operation of shares held (%) Principal activity

Subsidiaries: Direct holdings

British Sky Broadcasting Limited England and Wales 10,000,002 Ordinary Shares The transmission of the Group’s English language satellite television of £1 each (100%) broadcasting services Sky Television Limited England and Wales 13,376,982 Ordinary Shares Holding company of £1 each (100%) Sky In-Home Service Limited England and Wales 1,576,000 Ordinary Shares The supply, installation and maintenance of satellite television of £1 each (100%) receiving equipment Sports Internet Group Limited England and Wales 38,247,184 Ordinary Shares The provision of sports content, betting and e-commerce services of 5p each (100%) British Interactive Broadcasting England and Wales 651,960 Ordinary Shares The transmission of interactive services Holdings Limited (a) of £1 each (100%)

Subsidiaries: Indirect holdings

Sky Subscribers Services Limited England and Wales 2 Ordinary Shares The provision of ancillary functions supporting the satellite television of £1 each (100%) broadcasting operations of the Group Hestview Limited England and Wales 108 Ordinary Shares Licensed bookmakers of £1 each (100%) Sky Interactive Limited England and Wales 2 Ordinary Shares The provision of interactive television services of £1 each (100%) Sky Ventures Limited England and Wales 912 Ordinary Shares Holding company for joint ventures of £1 each (100%) British Sky Broadcasting SA Luxembourg 12,500 Ordinary Shares Digital satellite transponder leasing company of £12 each (100%) Sky New Media Ventures plc England and Wales 12,500 Ordinary Shares Holding company for new media investments of £1 each (100%)

Joint ventures

Nickelodeon UK England and Wales 104 B Shares of The transmission of children’s television services £0.01 each (50%) The History Channel (UK) England and Wales 50,000 A Shares of The transmission of history and biography television services £1 each (50%) Paramount UK (b) England and Wales Partnership interest (25%) The transmission of a general entertainment comedy channel Australian News Channel Pty Limited Australia 1 Ordinary Share of The transmission of a 24-hour news channel AUS$1 (33.33%) Granada Sky Broadcasting Limited (c) England and Wales 800 B Shares of The transmission of general entertainment channels £1 each (80%) MUTV England and Wales 100 B Shares of The transmission of the Manchester United football channel £1 each (33.33%) National Geographic Channel (d) England and Wales Partnership interest (50%) The transmission of natural history and adventure channels Music Choice Europe Limited England and Wales 44,001,120 A Shares of The transmission of audio music channels £1 each (36.4%) Attheraces plc England and Wales 1,000 Ordinary Shares of The transmission of a horse racing service and related £1 each (33.33%) on-line activities Chelsea Digital Media Limited England and Wales 19,800 B Shares of £0.01 The production and marketing of the Chelsea Football Club each (20%) and 3,860,174 football channel redeemable preference shares of £1 each

Notes (a) 80.1% directly held by British Sky Broadcasting Group plc and 19.9% held by British Sky Broadcasting Limited. (b) The registered address of Paramount UK is 15–18 Rathbone Place, London W1P 1DF. (c) The economic interest held in Granada Sky Broadcasting Limited is 49.5%. (d) The registered address of National Geographic Channel is Grant Way, Isleworth, Middlesex TW7 5QD.

60 Annual Report and Accounts 2003 British Sky Broadcasting Group plc Five Year Summary

Consolidated results

2003 2002 2001 2000 1999 £m £m £m £m £m

DTH subscribers 2,341 1,929 1,537 1,189 979 Cable and DTT subscribers 202 279 299 303 253 Advertising 284 251 271 242 217 Interactive 218 186 93 5 – Other 141 131 106 108 96 Turnover 3,186 2,776 2,306 1,847 1,545

Operating expenses, net (2,815) (2,584) (2,146) (1,762) (1,360) Goodwill amortisation (122) (119) (44) – – Exceptional operating costs 5 (18) (23) (105) (456) Operating profit (loss) 254 55 93 (20) (271)

Share of operating results of joint ventures 3 (76) (256) (122) (58) Joint ventures’ goodwill amortisation, net – (1,070) (101) (14) – Share of joint venture’s loss on sale of fixed asset investment – – (70) (14) – Profit (loss) on sale of fixed asset investments – 2 – (1) – Amounts written off fixed asset investments, net (15) (60) (39) – – Release of provision (provision) for loss on disposal of subsidiary – 10 (10) – – Net interest payable and similar charges (114) (137) (132) (92) (60) Profit (loss) on ordinary activities before taxation 128 (1,276) (515) (263) (389)

Taxation credit (charge) (i) 62 (107) (24) 65 103 Profit (loss) on ordinary activities after taxation 190 (1,383) (539) (198) (286)

Statistics Basic earnings (loss) per share 9.9p (73.3p) (29.2p) (11.3p) (16.6p) Diluted earnings (loss) per share 9.8p (73.3p) (29.2p) (11.3p) (16.6p) Dividend per share – interim – –––2.75p – final – –––– Payments to acquire tangible fixed assets (£ million) 98 101 133 58 76

Direct-to-home subscribers (‘000) 6,845 6,101 5,453 4,513 3,460 Cable subscribers (‘000) (ii) 3,871 4,091 3,486 3,735 3,778 DTT subscribers (‘000) (iii) 1,510 – 1,105 740 204 Total subscribers (‘000) 12,226 10,192 10,044 8,988 7,442

Average number of full-time equivalent employees 9,132 9,083 9,948 10,730 8,271

Capital employed £m £m £m £m £m

Fixed assets 991 1,129 2,411 1,886 343 Working capital (191) (17) 15 32 2 Provisions, tax and dividends (i) 199 115 182 24 (228) Net debt (1,105) (1,528) (1,547) (1,145) (665) Net (liabilities) assets (106) (301) 1,061 797 (548)

Notes (i) The taxation credit for 2000 and 1999 was restated following the adoption by the Group of FRS 19, Deferred tax in the year ended 30 June 2001. Adoption of FRS 19 resulted in the recalculation of loss per share for 2000 and 1999. (ii) The cable subscribers disclosure for 2000 and 1999 was restated in the year ended 30 June 2001 to include Eire subscribers. (iii) From 2003, the DTT subscriber number consists of BARB’s estimate of the number of homes with access to Freeview. Up until 2001, this subscriber number included all those subscribing to ITV Digital’s (previously On Digital) DTT service.

British Sky Broadcasting Group plc Annual Report and Accounts 2003 61 Shareholders’ Service

Share price information The Company’s share price is broadcast on SkyText on the Sky News channel on page 145, BBC Ceefax page 221 and on Channel 4 Teletext page 520, all under the prefix BSkyB. It also appears in the financial columns of the national press.

The latest BSkyB share price is available from the Financial Times Cityline Service, on 0906 843 4816.

Shares on-line You can also access your shareholding on-line and find a range of other services at the Lloyds TSB Registrars Shareholder website, www.shareview.co.uk.

ShareGift Shareholders who only have a small number of shares whose value makes it uneconomic to sell them may wish to consider donating them to charity through ShareGift, the independent charity share donation scheme (registered charity no. 1052686). Further information about ShareGift may be obtained from Lloyds TSB Registrars or from ShareGift on 020 7337 0501 or at www.sharegift.org. There are no implications for capital gains tax purposes (no gain or loss) on gifts of shares to charity and it is also possible to claim income tax relief.

Shareholder enquiries All administrative enquiries relating to shareholders, such as notification of change of address or the loss of a share certificate, should be made to the Company’s registrars whose address is given on the next page.

Breakdown of shareholders at June 2003 By Type

BSkyB Holdco Inc. 35% Fund Management Groups 34% Other 13% Insurance Companies 11% Pension Funds 4% Miscellaneous Banks 3%

Breakdown of shareholders at June 2003 By Location

BSkyB Holdco Inc. 35% London 34% USA & Canada 10% Continental Europe 7% Other 7% Scotland 5% Rest of UK and Eire 2%

62 Annual Report and Accounts 2003 British Sky Broadcasting Group plc Corporate Shareholder Information

Board of Directors Rupert Murdoch (Chairman) Tony Ball (Chief Executive Officer and Managing Director) Philip Bowman (Audit Committee Chairman) Chase Carey David DeVoe David Evans Allan Leighton James Murdoch Jacques Nasser Gail Rebuck Arthur Siskind Lord St John of Fawsley (Senior Independent Non-Executive Director) Martin Stewart (Chief Financial Officer) John Thornton (Remuneration Committee Chairman) Lord Wilson of Dinton

Company Secretary David Gormley

Financial Calendar Results for the financial year ending 30 June 2004

Q1 November 2003 Q2 February 2004 Q3 May 2004 Q4 August 2004 AGM November 2004

Company information Registered office: Grant Way Isleworth Middlesex TW7 5QD Telephone 0870 240 3000

Internet address http://www.sky.com

Registrars Lloyds TSB Registrars The Causeway Worthing West Sussex BN99 6DA Telephone 0870 600 3970

ADR Depository The Bank of New York Investor Relations P.O. Box 11258 Church Street Station New York, NY 10286-1258 Telephone (US) 1-888-BNY-ADRS Telephone (International) +1 (601) 312 5315 www.adrbny.com

Auditors Deloitte & Touche LLP 180 Strand London WC2R 1BL

Principal Bankers Barclays Bank plc 27 Soho Square London W1A 4WA

Solicitors Herbert Smith Exchange House Primrose Street London EC2A 2HS

Company Registration Number 2247735

British Sky Broadcasting Group plc Annual Report and Accounts 2003 63 64 Annual Report and Accounts 2003 British Sky Broadcasting Group plc Designed and produced by salterbaxter Portrait photography by Nikki English Printed by CTD Capita British Sky Broadcasting Group plc Grant Way, Isleworth, Middlesex TW7 5QD, England Telephone +44 (0)870 240 3000 Facsimile +44 (0)870 240 3060 www.sky.com Registered in England No. 2247735